Home Equity
Home equity is the portion of your home's value that you actually own — the market value minus any outstanding mortgage balance. Equity grows as you pay down principal and as the home appreciates.
Home worth $550,000 with $310,000 remaining on mortgage → equity = $240,000 (43.6% LTV equity).
Home equity is built two ways: by making mortgage payments (which reduce the loan balance) and through home price appreciation. A homeowner who bought a $400,000 home with a $320,000 mortgage and now owes $280,000 while the home is worth $450,000 has $170,000 in equity.
You can borrow against home equity through a home equity loan (lump sum, fixed rate) or a HELOC (home equity line of credit, variable rate). Both use your home as collateral — defaulting risks foreclosure.
Equity is the primary source of housing wealth for most American families and can fund major expenses (renovations, education, retirement). However, it is illiquid — you cannot spend equity without selling the home or taking on new debt.
Put this into practice with our free calculator:
Open calculator →Related terms
- Loan-to-Value Ratio (LTV)
- The loan-to-value (LTV) ratio is the mortgage amount divided by the property's appraised value, expressed as a percentage. An LTV above 80% typically requires private mortgage insurance (PMI) in the US.
- Refinancing
- Refinancing replaces an existing loan with a new one, typically at a lower interest rate, different term, or both. The goal is usually to reduce monthly payments or total interest paid.
- Net Worth
- Net worth is the total value of everything you own (assets) minus everything you owe (liabilities). It is the most comprehensive single-number measure of financial health.
- Amortization
- Amortization is the process of paying off a loan through scheduled, equal payments that cover both principal and interest. Early payments are mostly interest; later payments are mostly principal.