How to Calculate Home Equity: Complete Guide 2026
Home equity is the difference between what your home is worth and what you owe on your mortgage. Learn how to calculate it, access it through HELOC or cash-out refinancing, and build wealth through your home.
Home Equity Formula
Home Equity = Current Home Value - Remaining Mortgage Balance
Home equity represents the portion of your home you own outright. As you pay down your mortgage and your home appreciates, your equity increases.
Example Calculation
Home Value
$400,000
Mortgage Balance
-$250,000
Home Equity
=$150,000
How to Find Your Home Value & Mortgage Balance
Finding Your Home Value
- Free Online Tools: Zillow, Redfin, Trulia, or Realtor.com (estimates, not official)
- Professional Appraisal: $300-500 (required for HELOC/refinancing, most accurate)
- Comparable Sales: Check recent sales of similar homes in your neighborhood
- Real Estate Agent: Free comparative market analysis (CMA) from local agent
Finding Your Mortgage Balance
- Monthly Mortgage Statement: Shows principal balance owed (bottom of statement)
- Lender’s Website: Login and check "Account Balance" (most up-to-date)
- Loan Estimate: Ask lender for current balance (required for refinancing)
- Phone Lender: Call and ask for remaining principal balance as of today
LTV Ratio: Key to Access Terms
LTV (Loan-to-Value) determines what interest rates and terms you qualify for:
| LTV Range | Interest Rate | Comments |
|---|---|---|
| 60% or less | 7.5%-8% | Excellent rate, most equity built |
| 60-80% | 8%-9% | Good rate, no PMI required |
| 80-90% | 8.5%-9.5% | Higher rate, marginal approval |
| 90%+ | 9.5%-10.5% | High risk, restricted access |
Calculate LTV: (Mortgage Balance) ÷ (Home Value) = LTV%
Example: $250,000 ÷ $400,000 = 0.625 = 62.5% LTV
HELOC vs Home Equity Loan
Two ways to access your home equity:
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Rate Type | Variable (7.5%-10.5%) | Fixed (8%-9.5%) |
| Access | Like credit card, draw as needed | Lump sum upfront |
| Payments | Interest-only initially, then principal | Fixed principal + interest |
| Best For | Ongoing expenses, flexibility | One-time large expense |
| Risk | Rate increases with prime rate | Stable, predictable payments |
Typical Borrowing Limits: Most lenders allow you to borrow up to 85% LTV total.
Example: $400,000 home × 85% = $340,000 max. If you owe $250,000 mortgage, you can borrow $90,000 more via HELOC or home equity loan.
Cash-Out Refinancing
Replace your mortgage and get cash back:
How It Works
1. You Refinance: Replace $300,000 mortgage with $350,000 loan
2. Receive Cash: $50,000 difference ($350,000 new - $300,000 old)
3. Use the Funds: Pay credit cards, renovate, invest, etc.
4. New Terms: Amortize over 30 years, usually higher rate (0.25%-0.5% premium)
When to Use Cash-Out Refinance
- ✓ Interest rates dropped (refinance anyway, add cash-out)
- ✓ Home appreciated significantly ($100K+ in equity)
- ✓ Use cash for investment returns higher than mortgage rate
- ✗ Don’t use for vacations/consumer spending
- ✗ Avoid if it resets 30-year clock on mortgage
How to Build Home Equity Faster
Pay Extra Principal
Adding $100-200 extra to each mortgage payment cuts 5+ years off 30-year mortgage and saves $50,000-100,000 in interest.
Refinance to Shorter Term
Refinance from 30-year to 15-year if rates allow. Payment increases but you own home in half the time and save 50% on interest.
Home Improvements
Renovations (kitchen, bathroom, roofing) typically return 50-80% in resale value, increasing home equity.
Wait for Appreciation
National average home appreciation: 3% annually. On a $400,000 home, that’s $12,000/year in automatic equity gain.
Frequently Asked Questions
Home Equity = Current Home Value - Remaining Mortgage Balance. For example, a $400,000 home with a $250,000 mortgage balance = $150,000 home equity. You can access this equity through HELOC or cash-out refinancing.
Home Equity = Current Home Value - Remaining Mortgage Balance. For example, a $400,000 home with a $250,000 mortgage balance = $150,000 home equity. You can access this equity through HELOC or cash-out refinancing.
Use Zillow, Redfin, or Trulia for estimates; get a professional appraisal ($300-500) for accuracy; check recent comparable sales in your area; or ask a real estate agent for a market analysis. Most lenders require a full appraisal for HELOC or refinancing.
Use Zillow, Redfin, or Trulia for estimates; get a professional appraisal ($300-500) for accuracy; check recent comparable sales in your area; or ask a real estate agent for a market analysis. Most lenders require a full appraisal for HELOC or refinancing.
HELOC (Home Equity Line of Credit) is variable-rate revolving credit like a credit card. Home Equity Loan is fixed-rate installment loan. HELOC
HELOC (Home Equity Line of Credit) is variable-rate revolving credit like a credit card. Home Equity Loan is fixed-rate installment loan. HELOC: 8.5% variable, flexible; Home Equity Loan: 8% fixed, stable. Choose HELOC for flexibility, home equity loan for fixed payments.
Lenders typically allow 80-90% LTV (loan-to-value). If your home is $400,000 and you owe $200,000, you can borrow up to $120,000-160,000 more (85% × $400,000 = $340,000 max, minus $200,000 owed).
Lenders typically allow 80-90% LTV (loan-to-value). If your home is $400,000 and you owe $200,000, you can borrow up to $120,000-160,000 more (85% × $400,000 = $340,000 max, minus $200,000 owed).
LTV (Loan-to-Value) = Total Loan Amount ÷ Home Value. If you have a $300,000 mortgage on a $400,000 home, LTV = 75%. Lower LTV (under 80%) gets better rates. Refinancing is free if under 80% LTV, costs cash-out costs 0.25-0.5% extra.
LTV (Loan-to-Value) = Total Loan Amount ÷ Home Value. If you have a $300,000 mortgage on a $400,000 home, LTV = 75%. Lower LTV (under 80%) gets better rates. Refinancing is free if under 80% LTV, costs cash-out costs 0.25-0.5% extra.
Yes, though risky. Home equity is secured, credit card is unsecured. If you get a HELOC at 8.5% and pay off 22% APR credit cards, you save money. However, if you miss payments on HELOC, you can lose your home. Use only if you'll pay it off.
Yes, though risky. Home equity is secured, credit card is unsecured. If you get a HELOC at 8.5% and pay off 22% APR credit cards, you save money. However, if you miss payments on HELOC, you can lose your home. Use only if you'll pay it off.
Replace your current mortgage with a larger loan and take the difference in cash. On a $400,000 home with $300,000 mortgage, refinance to $350,000 loan and receive $50,000 cash. Interest rate usually 0.25%-0.5% higher than rate-and-term refinance.
Replace your current mortgage with a larger loan and take the difference in cash. On a $400,000 home with $300,000 mortgage, refinance to $350,000 loan and receive $50,000 cash. Interest rate usually 0.25%-0.5% higher than rate-and-term refinance.
Through principal payments and appreciation. On a $300,000 mortgage, first payment
Through principal payments and appreciation. On a $300,000 mortgage, first payment: $100 principal, $1,500 interest. As you pay down principal (3-4% annually), equity builds. Plus, home appreciation (3% nationally) adds $9,000-12,000 to $300,000 home annually.
If mortgage rate is 4%, market returns 7-10%, invest. If mortgage is 7%, likely better to pay it down. Many do 70/30 split
If mortgage rate is 4%, market returns 7-10%, invest. If mortgage is 7%, likely better to pay it down. Many do 70/30 split: pay down mortgage while investing extra. Psychological benefits of debt payoff vs financial returns must be balanced.
Loan available to homeowners 62+. Borrow against home equity without monthly payments. Funds can be lump sum, line of credit, or annuity. Repaid when you move/die. Interest rates
Loan available to homeowners 62+. Borrow against home equity without monthly payments. Funds can be lump sum, line of credit, or annuity. Repaid when you move/die. Interest rates: 8-9%. Must be careful of fees (2-3% of loan).