Debt percentage is the percentage of an asset funded by debt; equity percentage is the percentage of an asset funded by investment. Debt and equity percentages are relevant to many different types of assets, including real estate and personal property. The debt and equity percentages of a particular asset are complimentary -- they always add up to 100 percent. It is generally riskier to hold an asset with a high debt percentage, such as a house with a large mortgage, than to hold an asset with a high equity percentage.
Determine your asset's fair market value. For an expensive asset, such as a home, you need the services of a professional appraiser. For other assets, such as an automobile, you might consult a public reference to determine its book value. If you overvalue your asset, you will overestimate your equity percentage, while if you undervalue it, you will underestimate your equity percentage.Step 2
Add up the total debts that the asset secures. Such debts may include mortgages, liens and pledges. Include only include debts that are held by secured creditors. Of course, your unsecured creditors might be able to seize your asset in a chapter 7 bankruptcy to satisfy an unrelated debt. A secured creditor holds a lien, mortgage or other financial instrument that gives him a specific claim over your asset in the event of default on a specific debt and priority over unsecured creditors with respect to that asset.Step 3
Divide the asset's total debt by its fair market value and multiply by 100 to calculate the asset's debt percentage. For example, if you have mortgages totaling $100,000 on home worth $300,000, the asset's debt percentage is 33 percent -- $100,000 divided by $300,000 times 100.Step 4
Subtract the asset's debt percentage from 100 percent to calculate its equity percentage. In the above example, the item's equity percentage would be 67 percent. Essentially this means that you own two-thirds of your home, while your secured creditors own one-third.
- If you owe more on an asset than it's worth, it will have a negative equity percentage. This might happen, for example, if the value of your home dropped after you took out a mortgage on it. If the asset is used to secure a personal debt, a negative equity percentage might mean that even if creditors seize your asset to satisfy the debt, they can still come after your other assets for any deficiency.
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.