How to Calculate Your Current Home Equity

Home equity is the portion of your home that you truly own, and it grows as you pay down your mortgage or as your home’s value increases.

More equity can mean more profit when selling, lower monthly mortgage payments, or the ability to borrow against it for home repairs or debt consolidation.

But how do you calculate your home equity, and how much do you need to access these benefits? This guide will walk you through everything you need to know.

Home equity loan calculator

How to calculate your home equity

To calculate your home equity, you’ll need two numbers: your home’s appraised value and your current mortgage balance. Once you have these numbers, use this simple formula:

Appraised value – mortgage balance = home equity

To express your equity as a percentage, divide your home equity by your home’s appraised value.

You can have 100% equity if you’ve bought your home outright or fully paid off your mortgage.

You could have “negative equity” if you owe more than the home is worth, which might happen if its value decreases or you take out additional debt, including a home equity loan, HELOC, or cash-out refinance.

Tip

If you’re unsure of your current home value, consider contacting a local appraiser or checking with your appraisal district. Online estimates can provide a general idea but aren’t as precise as a professional appraisal.

Are online home value estimates reliable?

Online estimates, such as those from Redfin or Zillow, can give you a ballpark idea of your home’s value but are less reliable than an official appraisal. Redfin reports a median error rate of 2.26% for homes on the market and 7.40% for off-market homes. Zillow’s “Zestimates” have a similar margin of error, at 3.20% and 7.52%, respectively.

How do I get an appraisal, and who pays for it?

To get a professional appraisal, hire a third-party appraiser—it may cost several hundred dollars. If you’re applying for a cash-out refinance, HELOC, or home equity loan, your lender will likely require an appraisal and arrange for it, but the cost will be included in your closing costs.

Why don’t I have more equity when I pay my mortgage every month?

Most of your mortgage payments go toward interest early in your mortgage term, so your equity builds slowly. Over time, more of each payment reduces your principal, allowing your equity to grow faster. To build equity quicker, consider making extra payments directly toward your principal balance.

How to calculate your loan-to-value ratio

Your loan-to-value ratio (LTV) measures how much you owe on your mortgage relative to your home’s value. You can calculate it using this formula:

(Outstanding mortgage balance / home’s current value) x 100

A lower LTV indicates more equity, which benefits you when seeking a home equity loan, HELOC, or canceling private mortgage insurance (PMI). For example, with an LTV of 25%, you’d have 75% equity in your home.

Do I have enough equity to cancel PMI?

If you put down less than 20% on your home, you might be paying PMI, which can increase your monthly costs. You can request to cancel PMI when you reach 80% LTV. If you miss this, your PMI will automatically be canceled once your LTV reaches 78%. For government-backed loans, such as an FHA mortgage, you’ll need to refinance to a conventional loan once you reach 80% LTV.

How do I increase my home equity?

You can grow your equity by improving your home’s value or paying down your mortgage. Making extra payments toward your principal is an effective strategy. For example, adding $100, $200, or $300 to your monthly payments or making one additional payment per year can significantly reduce the total interest paid and shorten the time to reach 100% equity.

How can I tap into my home equity without selling my house?

You don’t need to sell your house to access your home equity. Consider these options:

• Cash-out refinancing: Replace your mortgage with a larger one, and get the difference in cash.
• Home equity loan: Borrow a lump sum with fixed payments.
• Home equity line of credit (HELOC): Withdraw funds as needed, with variable rates and payments.

How much of my home equity loan can I tap into with a home equity loan?

Most lenders allow a combined loan-to-value (CLTV) ratio between 80% and 90%. To find out how much you can borrow, use this formula:

(Desired home equity loan + outstanding mortgage balance) / Appraised home value

Do I qualify for a home equity loan or HELOC?

Requirements vary, but most lenders look for:

• A combined LTV of 90% or less
• A debt-to-income ratio of 45% or lower
• A credit score of at least 620

Since HELOCs and home equity loans are second mortgages, lenders will scrutinize your income to ensure you can afford both your mortgage and the new loan payments.