How to Calculate Home Equity
What is Home Equity?
Home equity is the portion of your property you truly own — the difference between its current market value and the outstanding mortgage balance. It builds over time as you pay down the loan and as the property appreciates.
Formula
Equity = Current market value − Outstanding mortgage balance
- E
- Home Equity ($)
- V
- Current Market Value ($)
- M
- Outstanding Mortgage Balance ($)
Step-by-Step Guide
- 1Equity = Home Value − Mortgage Balance
- 2LTV (Loan-to-Value) = Mortgage ÷ Home Value × 100
- 3Borrowable equity is typically capped at 85% LTV
- 4Appreciation increases equity passively over time
Worked Examples
Input
Home worth $400,000, mortgage $250,000
Result
$150,000 equity, 62.5% LTV — healthy position
Input
Home worth $300,000, mortgage $285,000
Result
$15,000 equity, 95% LTV — limited borrowing power
Frequently Asked Questions
How do I build home equity faster?
Make extra principal payments, maintain and improve the property, and wait for appreciation. Each action directly increases your ownership stake.
Can I borrow against my home equity?
Yes, through a home equity loan or HELOC (home equity line of credit), typically up to 85% of your home's value minus the mortgage.
What is LTV and why does it matter?
LTV (Loan-to-Value) is the mortgage as a percentage of home value. Lenders prefer lower LTV because it means you have more equity and are less likely to default.
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