What Is Home Equity?
Home equity is the portion of a property's value the owner actually owns: the difference between what the home is worth and what is still owed on every loan secured by it. It grows as the mortgage is paid down and values rise, and is tapped only by selling or borrowing.
Home Equity in plain English
Your equity is the share of the home you own outright. If the home is worth $400,000 and you owe $280,000, your equity is $120,000.
It grows when you pay down the loan and when values rise, and shrinks if values fall. You can use it only by selling or by borrowing against it.
Advanced explanation
Equity is the property's current market value minus all liens secured by it (first mortgage, HELOC balance and any other liens). Lenders limit borrowing against equity with combined loan-to-value caps, so the equity you can actually borrow against is lower than total equity.
Formula
Home Equity = Home Value − Mortgage Balance- Home Value
- Current market value - an estimate until the home sells or is appraised.
- Mortgage Balance
- What you owe on every loan secured by the home, including any HELOC or second mortgage.
Lenders let you borrow only up to a combined loan-to-value limit, so usable equity is less than total equity.
Example
A $500,000 home with a $320,000 mortgage balance has $180,000 in home equity.
Try it: Home Equity with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Home equity: value minus what you owe
Equity is the part of the home's value you own outright. It grows as you pay down the loan and moves with the market.
- Estimated equity
- $180,000
- 36.0% of the value
- Loan-to-value
- 64.0%
- Mortgage balance$320,000
- Equity$180,000
Show the numbers as a table
| Scenario | Home value | Equity | Equity % | LTV |
|---|---|---|---|---|
| Hypothetical: value −10% | $450,000 | $130,000 | 28.9% | 71.1% |
| Today (your estimate) | $500,000 | $180,000 | 36.0% | 64.0% |
| Hypothetical: value +10% | $550,000 | $230,000 | 41.8% | 58.2% |
Formula
Equity = Home value − All loan balancesLTV = Loan balance ÷ Home value × 100Assumptions
- Hypothetical scenarios only change the value; they are not forecasts.
- Selling costs (often 6% to 10%) reduce what you would actually receive.
- Lenders usually let you borrow only up to about 80% to 85% of the value across all loans.
Why it matters
Equity determines when mortgage insurance can end, how much you can borrow against the home and how much you would net if you sold, after selling costs.
Common mistakes
- Counting equity as spendable cash.
- Ignoring selling costs when estimating what you would walk away with.
- Borrowing against equity for spending that does not hold value.
Compare and common questions
Home Equity: frequently asked questions
How do I build home equity faster?
Pay extra principal, make improvements that add value, or start with a larger down payment. Rising values also add equity, but you cannot control them.
How much equity can I borrow against?
It depends on the lender's combined loan-to-value limit: your existing loans plus the new one cannot exceed that share of the home's value.
Can home equity be negative?
Yes. If the home is worth less than what you owe, you have negative equity, sometimes called being underwater.
Related Terms
Where it fits
- Buying a home, Ownership: next, Escrow Account.
More Owning Terms
Recommended next step
Compare the two main ways to borrow against equity.
HELOC vs home equity loan →Sources and review
- What is a loan-to-value ratio and how does it relate to my costs?, Consumer Financial Protection Bureau. Supports: Loan-to-value compares what you owe with the home's value and affects borrowing costs.
Where this applies: United States. Borrowing limits are set by lenders and loan programs.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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