Key takeaways
- Equity is a financial term that conveys the value of your ownership of an asset (such as your house).
- Your equity in your home is equal to its current fair market value minus your outstanding mortgage and any other debts tied to the property.
- Homeowners have several options for accessing their home equity, including selling the home, taking out a loan (home equity loan, home equity line of credit) or opting for a no-loan home equity agreement.
U.S. homeowners hold a collective total of around $32 trillion in home equity (as of early 2025). An eye-popping number like that may leave you with a simple, yet critical, question: What is equity, exactly? Here, we’ll answer that question and provide some important context on the benefits of equity and how you can use it.
Understanding equity as a financial term
Equity is a financial term used to express the value of the property you own, minus any obligations tied to your property. This equation is a common expression of equity:
Equity = Assets – Liabilities
You may think of your equity collectively (i.e., all your assets and debts), which is akin to a calculation of your monetary net worth. Alternatively, you may think of equity strictly in reference to a specific piece of property (like your house).
Home equity becomes a very important term when you consider that a personal residence is usually the largest source of one’s wealth. The equity in a home will vary from homeowner to homeowner and can change over time due to the current market value of your home, and the value of any mortgage and other loans connected to the home.
How is home equity calculated?
You can calculate the estimated equity in your home. Start by finding estimates of its current fair market value. Third-party online real estate platforms can be a source of information. You can also visit the website of your county assessor’s office (or other property recording office, as applicable in your state) to check recent sales prices of homes very much like yours. These values don’t replace an independent appraiser’s valuation of your home, but they can serve as good estimates.
Then determine the amount left on any mortgage, home equity line of credit (HELOC), home equity loan (HEL) or other obligation tied to the property. You can check your monthly statements or your online account balances for these numbers.
Once you have these figures, subtract the debts on the property from its market value. The remainder will be an estimate of your equity in the home.
Home equity calculation example
Let’s say you bought your home for $300,000, and made a 20% down payment ($60,000) at the time. You then took out a mortgage for the remaining $240,000. At that point, you had equity of $60,000 in your home ($300,000 – $240,000).
Now let’s say your home’s market value remained the same over the next three years, and your monthly mortgage payments reduced the principal you owed on the mortgage by $15,000. At the end of those three years, you would owe $225,000. So, by subtracting what you owe ($225,000) from your home’s value ($300,000), you would then have $75,000 in home equity.
But if your home’s market value increased by $50,000 over those three years, its value would be $350,000. By subtracting what you owe ($225,000) from this new value ($350,000), you would then have $125,000 in home equity.
Why is building equity in a home a good thing?
Home equity is a measure of how much of your home you own outright. That’s a good thing because it means you have value in your asset, which can become a great financial resource for pursuing life and money goals.
More equity also generally translates to having less debt, which can help with credit profiles and scores. Strong credit can help open the door to more, and better, financing options in the future. It can also influence auto insurance rates, help you rent an apartment down the line and sometimes even help you get a job you want.
How to use the equity in your home
We’ve talked about how home equity is the portion of your home that you own outright, and how it’s an asset. Once you can access that asset, you can use it in many ways. How you would use your home equity depends on your financial situation, and the goals and aspirations you have. Some popular ways to use home equity include:
- Paying off high-interest debt, like credit cards.
- Taking care of needed home repairs and maintenance
- Funding home improvements
- Paying medical bills
- Making a down payment on an investment property or second home
- Covering education expenses
- Buying out a home in a divorce settlement
- Making home renovations to age in place
- Building an emergency fund
- Funding a small business or other passion project
While the options for using home equity are many, the ways of obtaining that equity are more limited. Compared to assets like cash, your home’s equity is generally illiquid, which means you must complete an extra step before being able to use that equity.
Making your home liquid
One method to make your home’s equity liquid is to sell it. However, selling may not make sense for many reasons, one of which is that it means having to find a new place to live. That new home would need to cost less than your current home. Otherwise, you won’t be able to save any of the cash proceeds from the equity of your old home.
Homeowners who don’t want to sell often look to loan options that use their home’s value to create liquidity. These include HELOCs, HELs and cash-out refinances. In each, lenders will offer cash to homeowners in exchange for a security interest in the home, along with a promise of repayment through monthly installments of interest and principal.
What is a home equity agreement and how does it work
Another option exists for homeowners who do not want to immediately sell their house, and want to avoid loans and the monthly payments that come with them. For them, a home equity agreement (HEA) may be a preferred method for tapping into home equity.
An HEA is a financial option that allows you to access your equity without taking on additional debt payments or selling your property. The amount you can obtain will depend on your home’s value and the amount of equity you have in it.
You receive cash proceeds up front, when you sign the agreement. In exchange, the HEA provider (such as Unlock Technologies) will receive a percentage of your home’s future value. The term of the agreement varies by provider, but can range from 10 years to 30 years. In the meantime, you continue to live in the property as usual.
You can end, or settle, the HEA at any time before the end of the term by buying your equity back, according to the terms of your agreement. Many people do this when they sell their home. Some providers, like Unlock, allow you to buy back partial portions of your equity over time without any pre-payment penalty. When you decide to buy your equity back, the HEA provider will obtain an appraisal of your home’s market value to determine the buyout amount based on its ownership interest.
Conclusion
Equity is an important financial concept to understand for homeowners who want to leverage their home’s value. When it comes to making home equity liquid, homeowners have several financial options. An HEA can be an excellent one for those looking for a flexible, transparent financing way to tap into their equity.
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Get StartedFAQS
Q. How much equity do I have in my home?
A. You can calculate the estimated equity you have in your home by subtracting what you owe on it from its current market value.
You can find estimates of your home’s market value from third-party online real estate platforms or recent sales prices of homes very much like yours. Check your monthly statements (or look at online account balances) to see how much you have left to pay on any mortgage, home equity line of credit (HELOC), home equity loan (HEL) or other obligation tied to the property.
Q. How can I get equity out of my home without refinancing?
A. Homeowners have several options to tap their home equity beyond refinancing their mortgages. The home equity line of credit (HELOC) and home equity loan are two loan-based options. There is also the home equity agreement (HEA), which allows homeowners to tap their home equity without taking out a loan.
Q. How does a home equity agreement (HEA) work?
A. An HEA gives you cash up front. In exchange, the HEA provider will receive a percentage of your home’s future value. The term of the agreement varies by provider, but can range from 10 years to 30 years. During the HEA term, there are no monthly payments or interest charges. You continue to live in the home as usual, and are responsible all regular costs of homeownership.
