How to Calculate Your Home Equity  

Key takeaways: 

• Knowing how much home equity you have is key to figuring out how much of it you can access. 
• Calculating your home equity is simple, quick and straightforward. 

Home equity is a hot topic, and for good reason. U.S. homeowners have accumulated a collective, all-time high of more than $32 trillion in home equity.  

But what does that mean for you as an individual homeowner? How can you determine how much home equity you have? And how much of your equity can you actually access? 

What is home equity?

Home equity is the difference between the current market value of your home and the amount you owe on the home. It’s basically a measure of how much of your home you own outright. If you have been paying down your mortgage over the years, there’s a good chance you’ve experienced a significant increase in your home equity thanks to increasing home values over time. 

Consider that, nationwide, home equity levels doubled between 2017 and 2024. The numbers started to soar in 2020 as home values skyrocketed in an environment of low interest rates, low for-sale home inventory and high buyer demand. In February 2020, the national median home price was $270,100. In the fourth quarter of 2024, it was $419,200 – more than a 55% increase in fewer than five years. 

So, if you have owned your home for a while, you may be sitting on a wealth of untapped home equity. 

Why is home equity important?

The amount of home equity you have tells you, in a numerical way, how much of your home you actually own. Lenders and other financial providers look to this number to help determine how much you could borrow in a loan, or how much you could receive in a non-loan home equity option.  

For most people, their home is their largest asset. Yet much of its value – its equity – is in an illiquid form. If you can access some of the equity in the form of cash, it can become a valuable resource to you. You can use home equity funds for almost any purpose: to pay off debt; take care of home maintenance, repairs and improvements; to pay medical bills; to pay for educational expenses; to build your emergency fund and more. 

How to calculate your home equity

Calculating your home equity amount is straightforward. Here are the three simple steps to take. 

1. Estimate the value of your home. The most accurate value of your home will come through a professional appraisal. This written assessment, developed by a licensed or certified appraiser, is an informed opinion on the “fair market value” of your home. Fair market value refers to the amount a home buyer would pay for your home at a given point in time. An appraiser will base this value on research, analysis and market data. 

Appraisals generally cost a few hundred dollars. But you can get a good estimate of your home’s market value by doing your own research. Online home value estimators, such as Zillow, Redfin and other realtor databases use publicly available data along with their own algorithms to develop estimates. Just by inputting your address, you can receive an estimate of your home’s fair market value. While they are easy to use and free, the estimates are just that: estimates. They may differ somewhat from the amount a professional appraiser would assign to your home.

2. Determine how much you owe on your home. This is the outstanding balance on your mortgage and any other loans you have on your house (such as a home equity line of credit or home equity loan). You can find your balance(s) on your most recent statements, by checking your balance online at your servicer’s website or by calling them directly. 

3. Subtract the amount you owe from your estimated fair market value. For example, let’s say your home’s estimated market value is $420,000 and you have a balance of $250,000 left to pay on your mortgage.  

$420,000 – $250,000 = $170,000 

The difference of $170,000 is how much equity you have in your home. 

LTV: the next calculation

Once you know how much equity you have, you can start to get an idea of how much of it you could tap. Companies offering homeowners a way to access their equity generally don’t allow them to tap the full amount of their equity. Rather, it’s usually 80% of the amount, though some financial providers may allow 85% or even 90%.  

The amount you can access may be based in part on your loan-to-value (LTV) ratio. LTV is the amount of your existing loans (mortgage and any other loans you have on the property) divided by the value of your home. So, using our example above, LTV would be: 

$250,000 (mortgage balance) / $420,000 (estimated home value) = 0.5952, or 59.52% 

Most financial institutions want to see an LTV or 85% or lower, although it is possible some non-loan providers will let homeowners access their equity with an LTV of 75%. 

Ways to tap your home equity

Depending on your financial situation, your preferences and the amount of home equity you have, you may have several choices of ways to tap that equity. These include: 

• Home equity line of credit (HELOC): A HELOC offers a line of credit from which you can draw funds up to the amount extended to you, as you need. Most HELOCs have variable rates, meaning that the interest rate – and therefore the monthly payment – can change throughout the loan’s term. 

• Home equity loan: A home equity loan gives you a sum of money at the beginning of the loan’s term. The interest rate is fixed, so the monthly payment will be the same throughout the loan’s term.  

• Cash-out refinance: In a cash-out refinance, you take out a new mortgage for more than what you currently owe on your home. You then pay off your existing mortgage with the funds from the new one, keeping the difference in cash. Homeowners who have a low mortgage rate likely will not want to give that up to refinance at a higher rate. 

• Reverse mortgage: This type of mortgage, available to homeowners age 62 and older, involves the lender making a monthly payment to you instead of you making a monthly mortgage payment to them. The lender receives an increasing amount of your home’s equity with each payment. Reverse mortgages are complex, so it’s important to carefully weigh all pros and cons. 

• Home equity agreement (HEA): An HEA is a good way to access equity for homeowners who don’t want to take on a loan, who don’t want to refinance and give up a low-interest rate mortgage, or for those who might not qualify for conventional options. With an HEA, you receive cash up front in exchange for a portion of your home’s future value. An HEA is not a loan, so it involves no additional monthly debt payments. Qualification is more flexible than that for loan options.  

Conclusion