How to Calculate Home Equity

Home equity is the portion of your home's value you actually own. It grows as you pay down your mortgage and as the property appreciates — and it's one of the most powerful tools in personal finance.

The Simple Formula

Home equity = current market value − outstanding mortgage balance. If your home is worth $400,000 and you owe $250,000, your equity is $150,000. This number changes every month as your loan balance decreases and every time the market shifts.

Two Ways Equity Grows

Scheduled payments: each monthly payment chips away at principal (though early payments are mostly interest — the amortization schedule shows the split). Appreciation: rising property values increase equity without any extra effort on your part. In a strong market, appreciation can dwarf principal paydown in the early years.

Why Equity Percentage Matters More Than Dollars

Lenders care about loan-to-value (LTV) ratio: mortgage balance ÷ home value. LTV below 80% means no PMI (private mortgage insurance). LTV below 80% also unlocks better HELOC and cash-out refinance terms. Tracking LTV alongside dollar equity gives you a clearer picture of your borrowing power.

Using Equity Wisely

Equity can fund renovations (HELOC or home equity loan), bridge a down payment on your next home, or serve as a safety net. The risk: your home secures these borrowings, so over-leveraging equity can put your property at risk if values fall.