Finance & Economics · Real Estate & Mortgages · Mortgage Calculations
Home Equity Calculator
Calculates your current home equity by subtracting total outstanding mortgage balances from your home's current market value.
Calculator
Formula
E = home equity (dollar amount); V = current market value of the home; L = total outstanding loan balance (sum of all mortgages and HELOCs); E_% = equity expressed as a percentage of current market value; LTV = loan-to-value ratio, the percentage of the home's value still owed to lenders.
Source: Consumer Financial Protection Bureau (CFPB) — Home Equity Loans and Lines of Credit guidelines; Fannie Mae Selling Guide B2-1.2 LTV ratio definitions.
How it works
Home equity is the portion of your property's value that belongs to you outright, rather than to a lender. It builds over time through two primary mechanisms: paying down your mortgage principal and appreciation in your home's market value. When you first purchase a home with a 20% down payment, you start with 20% equity. As you make monthly payments — each of which chips away at the principal balance — and as your home's value rises in a healthy real estate market, your equity stake grows. This accumulated equity represents genuine, accessible wealth that can be tapped through financial instruments like home equity loans or lines of credit.
The core formula is straightforward: Equity (E) equals the current market value (V) minus the total outstanding loan balance (L). The equity percentage is E divided by V, multiplied by 100. The loan-to-value (LTV) ratio is the inverse — total loans divided by value, multiplied by 100. LTV is critical because lenders use it to determine whether you qualify for a home equity loan or refinance. Most lenders require an LTV of 80% or below (meaning at least 20% equity) to avoid private mortgage insurance (PMI) on conventional loans. For home equity borrowing, many lenders allow a combined LTV of up to 85%, which is why this calculator also shows your estimated borrowable equity based on that threshold.
In practice, determining your home equity accurately requires two key inputs: a reliable estimate of your home's current market value and your current loan payoff balance(s). Market value can be estimated using recent comparable sales (comps) in your neighbourhood, an online automated valuation model (AVM) from sources like Zillow or Redfin, or a professional appraisal — which is the most accurate but costs $300–$600. Your loan balance is found on your most recent mortgage statement or by calling your servicer. If you have both a first mortgage and a second mortgage or home equity line of credit (HELOC), both must be included in the total loan balance.
Worked example
Consider a homeowner who purchased a house five years ago for $380,000 with a 10% down payment ($38,000). Since then, the local real estate market has appreciated and the home is now worth $450,000. The homeowner has been making regular payments and the primary mortgage balance has been paid down to $280,000. There is also an outstanding HELOC balance of $15,000 used for a kitchen renovation.
Step 1 — Total Loan Balance: $280,000 + $15,000 = $295,000
Step 2 — Home Equity (Dollar Amount): $450,000 − $295,000 = $155,000
Step 3 — Equity Percentage: ($155,000 ÷ $450,000) × 100 = 34.44%
Step 4 — Loan-to-Value Ratio: ($295,000 ÷ $450,000) × 100 = 65.56%
Step 5 — Borrowable Equity (85% LTV cap): ($450,000 × 0.85) − $295,000 = $382,500 − $295,000 = $87,500
This homeowner has built $155,000 in equity — up from the initial $38,000 down payment — thanks to both principal paydown and home appreciation. With an LTV of 65.56%, they are well below the 80% threshold and could borrow up to approximately $87,500 in additional home equity financing while staying within the common 85% combined LTV limit lenders allow.
Limitations & notes
This calculator provides an estimate based on the inputs you supply and should not be used as a substitute for a formal appraisal or a lender's underwriting assessment. The accuracy of your equity figure depends entirely on the accuracy of your home value estimate — automated valuation models can be off by 5–15% in volatile or thinly traded markets. The 85% borrowable equity cap used here is a common lender guideline, but individual lenders vary; some cap combined LTV at 80%, others at 90%, and terms differ significantly based on credit score, debt-to-income ratio, and property type. The calculator does not account for closing costs associated with home equity loans or refinancing, which typically range from 2–5% of the loan amount and would reduce your net proceeds. Additionally, homeowners in negative equity (underwater mortgages) — where the loan balance exceeds the home value — will show negative equity, meaning borrowing against the home is not possible until value recovers or principal is reduced. Tax implications, such as the deductibility of home equity loan interest (limited to loans used for home improvement under current U.S. tax law), are also outside the scope of this tool.
Frequently asked questions
What is a good amount of home equity to have?
Most financial advisors recommend maintaining at least 20% equity in your home, which corresponds to an LTV of 80% or below. This threshold eliminates the requirement for private mortgage insurance (PMI) on conventional loans, unlocks favourable refinancing terms, and provides a meaningful financial cushion against market downturns. Equity above 20% gives you increasing flexibility to borrow through a HELOC or home equity loan for major expenses like renovations or education.
How does the loan-to-value (LTV) ratio affect my ability to borrow?
LTV is one of the primary metrics lenders use to assess risk. A lower LTV signals to lenders that you have more skin in the game and that they are less exposed if the property value drops. For a standard mortgage refinance, most lenders prefer an LTV at or below 80%. For home equity loans and HELOCs, many lenders allow a combined LTV (first mortgage plus home equity loan) up to 85%, though some go as high as 90% for well-qualified borrowers. An LTV above 95% typically makes new borrowing impossible outside of government-backed programs.
What is the difference between a home equity loan and a HELOC?
A home equity loan is a lump-sum loan at a fixed interest rate, repaid in fixed monthly instalments — essentially a second mortgage. A home equity line of credit (HELOC) is a revolving credit line, more like a credit card, with a variable interest rate. You draw from it as needed during a draw period (typically 10 years) and then repay the outstanding balance during a repayment period. Both are secured by your home equity, and both require a minimum LTV threshold to qualify. For this calculator, any outstanding HELOC balance should be entered as your second mortgage/HELOC balance.
Does paying extra on my mortgage principal significantly increase equity?
Yes. Making extra principal payments is one of the most direct ways to accelerate equity building. On a $300,000 mortgage at 7% over 30 years, making just $200 extra in principal payments per month reduces the loan term by approximately 6 years and saves over $80,000 in interest, while simultaneously growing your equity faster. The impact is most pronounced early in the loan when standard payments are heavily weighted toward interest under amortisation schedules.
Can my home equity go negative, and what does that mean?
Yes — if your outstanding loan balance exceeds your home's current market value, you are in a state of negative equity, commonly called being 'underwater' or 'upside down' on your mortgage. This can happen when home values fall significantly, as seen during the 2008–2012 housing crisis in many U.S. markets. Negative equity prevents you from refinancing or selling without a shortfall, and makes a home equity loan impossible. Homeowners in this situation may need to wait for values to recover, pay down principal aggressively, or in severe cases, explore options like a short sale or loan modification with their servicer.
Last updated: 2025-01-15 · Formula verified against primary sources.