What is home equity?
Home equity is the difference between what your home is worth and what you still owe on it. If the home is worth more than your loans, you have positive equity. If you owe more than it is worth, you have negative equity, sometimes called being "underwater": selling would leave a shortfall.
equity = home value − all loans secured by the home
Equity grows in two ways: as you pay down the mortgage and as the home rises in value. But equity only turns into cash when you sell or borrow against it; until then it is a paper figure that can also fall.
Worked example
Your home is worth about $400,000. You owe $250,000 on the mortgage and $20,000 on an existing home equity line of credit (HELOC).
- Equity: 400,000 − 270,000 = $130,000.
- Loan-to-value: 270,000 / 400,000 = 67.5%.
- If a lender allows a combined loan-to-value (CLTV) of 85%, the maximum total debt is $340,000, so you could borrow up to about $70,000 more.
Which home value should you use?
- Recent comparable sales: what similar homes nearby have sold for recently is the best guide.
- Online estimates: automated valuation models are convenient but can be off by a wide margin, especially for unusual homes.
- Appraisal: for a HELOC, home equity loan or cash-out refinance, the lender orders an appraisal, and that value determines how much you can borrow.
Borrowing against your equity
There are three common ways to tap equity:
- Home equity loan: a lump sum at a fixed rate, repaid in fixed monthly payments.
- HELOC: a revolving line of credit you draw on as needed, usually at a variable rate.
- Cash-out refinance: replacing your mortgage with a larger one and taking the difference in cash.
Lenders typically cap the combined loan-to-value at around 80% to 90%, and they also check your credit score and debt-to-income ratio. So even with plenty of equity, the amount you can borrow depends on your income and credit. Remember that your home is the collateral: if you can't keep up with payments, you could lose it. Interest may be tax-deductible in some cases, for example in the US when the money is used to buy, build or substantially improve the home, but check current rules with a tax professional.
Equity when you sell
When you sell, you don't keep your full equity. Agent commissions, closing costs, transfer taxes, repairs and moving costs reduce what you walk away with. Enter an estimate of selling costs as a percentage to see your net proceeds.
Related calculators
To see what a larger loan would cost each month, use the mortgage calculator or the amortization calculator. For an unsecured personal loan, for example for a renovation, use the loan calculator.
Building equity faster
Extra principal payments, a shorter loan term and home improvements that genuinely add value all build equity faster. Not every renovation pays for itself, though: kitchens, bathrooms and energy upgrades tend to hold value better than highly personal choices.
Frequently asked questions
How do I calculate my home equity?
Subtract all loans secured by your home from its current market value. A $400,000 home with $250,000 owed has $150,000 in equity.
What is a good loan-to-value ratio?
Lower is better. Many lenders offer their best rates at 80% LTV or below, and 80% is a common threshold for avoiding private mortgage insurance.
How much can I borrow against my home?
Typically up to a combined loan-to-value of 80% to 90%, minus what you already owe, subject to your income and credit.
What is negative equity?
When you owe more than your home is worth. Selling would leave a shortfall you would need to pay.
What is CLTV?
Combined loan-to-value: all loans secured by the home, including a HELOC or second mortgage, as a percentage of its value.
Does home equity count as savings?
It is part of your net worth, but it is not liquid: you can only access it by selling or borrowing against the home.
Last reviewed: 2026-10-06. Results are estimates for information only.