How to Calculate Home Equity (and How Much You Can Borrow Against It)
Equity is value minus balance — but borrowing room is smaller, because lenders cap total borrowing at a percentage of the home’s value. Both calculations, worked.
Home equity is the part of your home you actually own: its current value minus what you still owe on the mortgage. It is a simple subtraction — but the amount you can borrow against it is smaller than your equity, because lenders cap total borrowing against the home. This guide shows both calculations, with worked examples.
- Home equity = current home value minus mortgage balance.
- Borrowing room = LTV cap times value minus balance, never below $0 — at 80%, a $500,000 home with a $300,000 mortgage allows $100,000.
- Equity, credit limit, and drawn balance are three different numbers; only the drawn balance costs interest.
The equity formula
Home equity = current home value − mortgage balance. If your home is worth $500,000 and you owe $300,000, your equity is $200,000. Equity grows in two ways: as you pay the mortgage down, and as the home’s value rises. It shrinks if the value falls or if you take on more borrowing against the home.
Use the lender’s appraised value, not a guess, for any decision that matters: the appraisal is the value that counts in a real application. Your own estimate is fine for planning, and it is exactly what a calculator uses.
From equity to borrowing room: the LTV cap
Lenders do not let you borrow all of your equity. They cap combined borrowing — your existing mortgage plus the new loan — at a percentage of the home’s value. That percentage is the combined loan-to-value (CLTV) cap, and 80% is the standard, though some lenders go to 85% or 90%:
Maximum new loan = (LTV cap × home value) − mortgage balance, never below $0.
On the $500,000 home with a $300,000 mortgage, an 80% cap allows total borrowing of $400,000, so the maximum new loan is $100,000 — half the $200,000 of equity. The other half stays in the home as the lender’s cushion. At an 85% cap the same home allows $125,000; at 90%, $150,000, usually at a higher rate and with stricter requirements.
| Home value | Mortgage balance | Equity | Max new loan at 80% |
|---|---|---|---|
| $500,000 | $300,000 | $200,000 | $100,000 |
| $750,000 | $200,000 | $550,000 | $400,000 |
| $300,000 | $100,000 | $200,000 | $140,000 |
| $400,000 | $350,000 | $50,000 | $0 — the balance already tops the 80% cap of $320,000 |
Equity and borrowing room are different numbers. The last row has $50,000 of equity and no borrowing room at all.
What changes your equity over time
- Mortgage payments. Every payment’s principal portion cuts the balance and adds the same amount to equity. Early in a mortgage most of the payment is interest, so equity grows slowly at first and faster later.
- Home values. A rising market adds equity without you paying a cent; a falling market removes it. A home bought for $400,000 with a $350,000 mortgage has $50,000 of equity — if the value falls to $340,000, the equity is gone and the loan is larger than the value.
- Extra borrowing. A HELOC draw or a second loan does not change your equity the day you sign, but it uses up borrowing room: the equity is still there, it is just already pledged.
- Home improvements. Renovations can raise value, but they do not add dollar-for-dollar equity — only the appraised increase counts, and only after a new appraisal.
Equity, credit limit, and drawn balance are three different things
With a home equity loan, the distinction is simple: you borrow one lump sum, usually up to the maximum the cap allows, and repay it. With a HELOC, there are three numbers to keep apart: your equity (value minus balance), your credit limit (the maximum the lender lets the line reach, set by the cap), and your drawn balance (what you have actually taken). You only pay interest on the drawn balance, and you can draw, repay, and draw again during the draw period — but your total borrowing can never exceed the limit the cap sets.
Worked example, start to finish
A home worth $500,000 with a $300,000 mortgage: equity is $500,000 − $300,000 = $200,000. The current loan-to-value ratio is $300,000 ÷ $500,000 = 60%. At an 80% cap, total borrowing may reach $400,000, so the maximum new loan is $400,000 − $300,000 = $100,000. Borrowed as a fixed loan at an example rate of 7.00% over 15 years, that $100,000 costs $898.83 a month, with $61,789.09 of total interest. Borrow less and both figures fall in proportion — the payment formula is linear in the loan amount.
Calculate your equity and your borrowing room
Enter your home value and mortgage balance to see your equity, the LTV cap, and the monthly payment on the amount you could borrow.
Open the Home Equity Loan Calculator Open the HELOC CalculatorFrequently asked questions
How do I calculate my home equity?
Subtract your mortgage balance from your home’s current value. A $500,000 home with a $300,000 mortgage has $200,000 of equity. If you have more than one loan against the home, subtract all of them.
Why can’t I borrow all of my equity?
Because lenders cap combined borrowing at a percentage of the home’s value — usually 80%. The cushion protects the lender if prices fall and leaves you with equity still in the home. On a $500,000 home with a $300,000 mortgage, the 80% cap allows a $100,000 new loan, not the full $200,000 of equity.
Does the appraisal change my equity?
Yes, for lending purposes. Your equity for planning can use your own value estimate, but a lender uses its appraisal. A higher appraisal raises both your equity and your borrowing room; a lower one cuts both, and can cut the approved loan to $0 if the balance already tops the cap.
What if I owe more than my home is worth?
Then your equity is negative — the loan is larger than the value, sometimes called being underwater. There is no borrowing room against the home until the balance falls or the value rises, and selling would not cover the mortgage. Extra principal payments and time are the usual ways out.
Does opening a HELOC reduce my equity?
Not by itself. An undrawn HELOC does not change value minus balance. But every dollar you draw increases total borrowing against the home, using up the room the cap allows — and the drawn balance must be repaid, with interest, whether the home’s value rises or falls.
How often should I recheck my equity?
Whenever you are about to borrow against it, and roughly once a year otherwise. Mortgage statements show the balance; a fresh valuation — even a careful estimate from recent comparable sales — shows the value side. Both numbers move, so an equity figure from two years ago is not a borrowing plan.
All examples recomputed from the equity and LTV-cap formulas. LTV caps of 80%, with some lenders at 85% or 90%, are the standard ranges described on the calculator pages; an individual lender’s cap, rate, and fees govern any real application. Example rates are illustrations, not quotations.
- 1Mortgage
Payments, taxes, PMI.
- 2Loan
Payments and interest.
- 3Amortization
Payoff schedule.