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Enter your home's current market value and every loan balance secured against it (your main mortgage plus any second mortgage or HELOC). The calculator subtracts all balances from the value to get total equity, converts it to an equity percentage and a loan-to-value (LTV) figure, then applies the standard 80% LTV rule to show the usable equity a lender would typically let you borrow against.
Home equity is the part of your home you truly own: the current market value minus everything you still owe against it. The core home equity formula is simple: equity = home value - total loan balances. Add up your main mortgage balance, any second mortgage, and any existing HELOC balance, then subtract that total from the home's current value. From there, two ratios matter. Equity percentage = (equity / home value) × 100 tells you what share of the home is yours outright. Loan-to-value, or LTV = (total loans / home value) × 100, tells a lender what share is financed with debt. A common mistake is using the original purchase price instead of today's value, or forgetting a second loan or lien, both of which distort the result.
Say your home is worth $400,000 and your remaining mortgage balance is $250,000, with no second loan. Total equity = $400,000 - $250,000 = $150,000. Equity percentage = (150,000 / 400,000) × 100 = 37.5%. LTV = (250,000 / 400,000) × 100 = 62.5%. Now apply the 80% LTV rule: $400,000 × 0.80 = $320,000, then subtract what you owe: $320,000 - $250,000 = $70,000 of usable equity. Notice that $70,000 is far less than the $150,000 headline equity, because lenders insist you keep a cushion. These numbers are estimates for planning, not professional financial advice; a lender will use its own appraisal and credit review before approving anything.
Lenders use the loan-to-value ratio to measure risk: the higher the LTV, the more of the home's value is encumbered by debt. Most conventional lenders cap the combined loan-to-value (CLTV, which includes your first mortgage plus any new home equity loan or HELOC) at 80% to 85% of the appraised value. Well-qualified borrowers with strong credit and low debt can sometimes reach 90%, but expect higher rates or stricter checks. The 80% LTV rule exists so that if property values drop, the lender still has enough collateral to recover what is owed. A falling market or an added loan can push your LTV back up, which is why lenders also look at your credit score, income, and debt-to-income ratio before deciding how much you can borrow.
There are three common ways to borrow against equity. A home equity loan pays a lump sum with a fixed interest rate and fixed monthly payments, which suits one-time projects with a known cost, like a roof replacement. A HELOC works like a credit card secured by your home: you draw what you need during a draw period, usually at a variable rate, which suits ongoing or phased expenses. A cash-out refinance replaces your current mortgage with a new, larger one and lets you pocket the difference, which can make sense if today’s rates are close to your existing rate but is costly if you would give up a much lower rate. Compare closing costs and total interest for all three before choosing. In short: home equity loan vs HELOC comes down to a lump sum vs a flexible line, while cash-out refinance vs home equity loan comes down to whether you also want to change your first mortgage. Only borrow what fits your budget alongside your existing obligations.
You can increase home equity in two fundamental ways: pay down debt or raise the home's value. Start with a larger down payment so you own a meaningful share from day one. Make extra principal payments whenever possible, since each dollar directly raises equity and lowers your LTV. Targeted renovations, such as kitchens and bathrooms, can raise market value, though the return varies by project and neighborhood. A shorter loan term builds equity faster because more of each payment goes to principal. Finally, rising local home prices lift equity on their own, so a new appraisal or automated valuation after a few strong years can reveal borrowing power you did not have before.
To calculate home equity, subtract every loan balance secured by your home from its current market value. If your home is worth $400,000 and you owe $250,000 on the mortgage plus $20,000 on a HELOC, your equity is $400,000 - $270,000 = $130,000, or 32.5% of the value. Use the current market value, not the original purchase price, and include all loans and liens.
Most lenders let you borrow up to 80% to 85% of your home's appraised value, minus what you still owe. The standard calculation is: usable equity = (home value × 0.80) - total mortgage balances. Ways to increase your home equity borrowing amount include paying down debt, improving your credit score, shopping multiple lenders for a higher CLTV limit, and getting a fresh appraisal if local values have risen. There is no single legal minimum, but lenders typically want you to retain at least 15% to 20% equity after borrowing.
The 80% LTV rule is the lending industry's standard cap: total debt secured by your home cannot exceed 80% of its appraised value. It means you must keep at least 20% equity as a cushion against price drops. For example, on a $500,000 home the maximum combined debt is $400,000; if you owe $300,000, you could potentially borrow up to $100,000 more. Some lenders allow 85% or 90% for well-qualified borrowers.
A home equity loan gives you a lump sum at a fixed interest rate with fixed monthly payments over a set term, similar to a personal loan but secured by your home. A HELOC is a revolving line of credit: you draw funds as needed during a draw period and typically pay a variable rate on what you use. HELOCs offer flexibility for ongoing costs; home equity loans offer payment certainty for a single known expense.
Yes. When home prices rise, equity grows in two ways: by paying down your mortgage principal and through market appreciation. If you owe $250,000 and your home's value rises from $400,000 to $450,000, your equity grows from $150,000 to $200,000 without any extra payment. That is why checking your home equity once a year, or after a strong run in local prices, is worthwhile.
Yes. If home values fall, you can lose home equity even if your loan balance stays the same. Borrowing more against the home or missing payments can also erode it. If your total debt exceeds the home's value, you are underwater (negative equity). Keeping a healthy cushion above the 80% LTV line protects you against normal market swings.
Check your home equity once a year, or more often if you are considering a refinance, a HELOC, a sale, or a major renovation. Also recheck after large extra principal payments or when comparable homes nearby sell for notably more, since both events move your equity number.
It can be, but only when the borrowed money is used to buy, build, or substantially improve the home that secures the debt, and only if you itemize deductions. Interest on home equity debt used for other purposes, such as vacations or consolidating credit cards, is generally not deductible. Tax rules vary and change, so confirm your situation with a tax professional.