Home equity is the difference between your property's current market value and the outstanding balance of any loans secured against it. It represents the portion of your home you own free and clear. Equity is a form of wealth — it can be accessed, invested, or used as collateral — but it is illiquid until you sell or borrow against it.
How Equity = Value Minus Mortgage Balance
Equity = Current Market Value − Outstanding Loan Balance(s)
If your home is worth $450,000 and you owe $280,000 on your mortgage, your equity is $170,000 — roughly 37.8% of the property's value. Use the Home Equity Calculator to track your equity position and see how much you could access through a HELOC or cash-out refinance.
Two Ways Equity Builds
Equity grows through two mechanisms. First, amortization: every mortgage payment reduces your loan balance slightly, directly increasing equity. Second, appreciation: as your property's market value rises, the spread between value and loan balance widens. Both work simultaneously. In the early years of a 30-year mortgage, appreciation typically contributes far more to equity growth than principal paydown — the amortization schedule front-loads interest, leaving minimal principal reduction in the first decade.
HELOC vs Cash-Out Refinance: Accessing Equity
There are two primary ways to access home equity without selling. A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home, typically with a variable rate and a draw period of 10 years followed by a repayment period. A cash-out refinance replaces your entire existing mortgage with a new, larger loan and pays you the difference in cash — useful when current rates are favorable or you want a fixed-rate product. Both options are limited by your lender's maximum LTV (usually 80–85% of appraised value).
LTV and Available Equity
Lenders do not allow you to borrow against 100% of your equity. Most cap total debt at 80% LTV (some allow 85–90%). If your home is worth $450,000 and your lender's maximum LTV is 80%, the most you can have in total mortgage debt is $360,000. If you currently owe $280,000, your maximum additional borrowing is $80,000 — even though your total equity is $170,000. The Refinance Calculator shows exactly how much you can access based on your LTV and current loan balance.