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You can calculate home equity by subtracting your mortgage balance(s) from your home's current value. From there, you can estimate how much you're likely to net if you sell your home, or how much you might be able to borrow with a home equity loan or home equity line of credit. Here's how to get a quick read on your equity.
What Is Home Equity?
Home equity is the portion of your home that you own. For most homeowners, this is your home's current value minus your mortgage balance (or balances if you also have a home equity loan or line of credit).
Americans with a mortgage have about $313,000 in home equity on average, according to the ICE Mortgage Monitor Report for March 2025.
Three common sources of home equity are:
- Your down payment: If you put 10% down on your new home, you'll have (roughly) 10% equity at the beginning of your mortgage term. If you purchased your home with cash, your equity is 100%.
- The portion of your principal balance you've paid: A portion of every mortgage payment goes toward paying off your principal balance, increasing your equity as a result.
- Your home's appreciation: When the value of your home increases but your mortgage balance does not, your equity grows.
Tip: You may be able to use your home equity to secure a home equity loan or home equity line of credit (HELOC). See a side-by-side comparison between these two types of second mortgages.
How to Calculate Home Equity
To calculate your home equity, subtract your mortgage balance from your home's current value. Here are three simple steps to get you there.
1. Find Out Your Home's Value
To get a quick estimate of your home's current value, try using home valuation tools on websites like Zillow, Redfin or Realtor.com. These tools can give you a ballpark estimate of your home's value without the trouble and expense of hiring an appraiser. Just be aware that if you decide to borrow against your home equity, your lender will probably require a professional appraisal.
2. Determine Your Current Mortgage Balance
Grab your most recent mortgage statement or log in to your online mortgage account and check your current balance. If you have a home equity loan or a HELOC, check those balances as well. You'll use all current balances to calculate your home equity.
3. Subtract Your Mortgage Balance From Your Home's Value
Now, calculate your home equity using this formula: your home's current value minus your combined mortgage balance.
Example: Let's say you bought your home for $300,000 in 2015. Your original mortgage was $240,000, and your current balance is $127,000. You also have a home equity loan with a balance of $43,000. An online estimator says your home is now worth $420,000.
Here's how to calculate home equity based on those amounts:
| Current home value | $420,000 |
| Primary mortgage balance | -$127,000 |
| Home equity loan balance | -$43,000 |
| Home equity | $250,000 |
To calculate your home equity as a percentage, divide your mortgage balance (or combined home loan balances) by your home's value. In our example, that's $170,000 ($127,000 mortgage + $43,000 home equity loan) divided by $420,000 = 0.40 or 40%.
How to Increase Your Home Equity
Home equity typically builds over time as you pay down your mortgage balance and allow your home's value to appreciate. However, you can take steps to grow your home equity faster. Here are a few ideas that may help speed up the process:
- Make larger monthly mortgage payments. Adding even $50 or $100 to your monthly mortgage payment can help you pay your loan off faster and build equity sooner.
- Make a lump-sum payment. Similarly, using a yearly bonus, an inheritance or another type of windfall to pay down your mortgage can have equity-building results.
- Eliminate private mortgage insurance (PMI). If you pay for PMI, you can ask to cancel it when your home equity reaches 20% or higher. Use the money you save every month to boost your mortgage payment and pay down your balance faster. Some types of mortgage won't automatically cancel mortgage insurance, however, and will require you to refinance.
- Choose a shorter loan term. When you buy a home or refinance your mortgage, consider a 10-, 15- or 20-year loan instead of a standard 30-year term. You'll pay down your principal balance—and increase your equity—faster.
- Improve or add onto your home. Making significant improvements to your home can raise its value and, potentially, increase your equity—although taking out an additional loan to cover the cost of renovations may bring your equity down again.
- Hold on in a hot housing market. Though you don't control housing prices, you can choose to hold onto your investment when the market is rising. Some of the most substantial equity growth happens when the housing market is strong.
Pros and Cons of Using Home Equity
You can borrow against the equity in your home with a home equity loan or HELOC, but should you? Here are a few pros and cons to consider if you're thinking about it.
Pros
Flexibility: You can use the money you borrow against your home equity to fund a home improvement project, pay medical bills, consolidate high-interest debt or cover major expenses; the choice is yours.
Lower interest rates: Loans secured by your home typically have lower interest rates than unsecured personal loans or credit cards. A HELOC also may offer a low-interest introductory period.
Potential tax deduction: If you use a home equity loan or HELOC to improve your primary residence or a second home, you may be able to deduct mortgage interest from your tax bill.
Cons
Loan limits: Lenders generally limit the amount of equity they'll allow you to tap. With some exceptions, lenders like you to maintain 15% to 20% equity in your home after accounting for your primary mortgage and any home equity loans or HELOCs.
Negative equity: In spite of the loan limits just described, it's still possible to overdraw on your equity. If you borrow against your home equity and the housing market takes a dip, you could end up owing more on the home than it's worth.
Foreclosure: If you can't make payments on a loan or credit line secured by your house, your home could go into foreclosure. The risk of foreclosure is a key consideration to make.
Shrinking profits: Home equity loans and HELOCs generally have to be repaid when you sell your home, which will decrease the proceeds you receive in hand.
Frequently Asked Questions
How Does Home Equity Affect PMI?
If you bought or refinanced your home with less than 20% down, you may be paying for PMI to protect your lender against losing money in a foreclosure. By law, PMI automatically expires when your loan balance drops below 78% of the original loan amount, or you've paid your loan for at least half of its term (15 years on a 30 year mortgage, for example).
You can ask to cancel PMI if your home equity exceeds 20% of your home's original value. Say you purchased your home for $500,000 with 10% down. Its current value is $600,000—a 20% increase. Your equity is now at least equal to 30% of your home's original value (10% down plus 20% appreciation, plus any principal you've paid off). You may have to provide an appraisal to document your home's current fair market value.
How Soon Can I Use Home Equity?
Technically, you can apply for a home equity loan or line of credit as soon as your primary mortgage closes. Although some lenders may prefer to see at least a few months of daylight between your loan closing and your HELOC application, there's no law that prevents you from asking.
But, here's a bigger sticking point: You'll need to have equity available to tap. As noted in the previous FAQ, lenders typically want to see an 80% to 85% combined loan-to-value ratio (CLTV). That means your primary mortgage and second mortgage or mortgages combined can't exceed 80% or 85% of your home's value.
Unless you put an extra-large down payment on your home, you may need time to build up additional equity—by paying down your loan balance, allowing your home's value to appreciate or doing home improvements to increase the amount your home is worth.
Learn more: How Much Are Home Equity or HELOC Closing Costs?
The Bottom Line
Any way you slice it, home equity is a valuable asset. You can tap it to get a home equity loan or line of credit. You can hold onto it so you can maximize your proceeds when you're ready to sell. Or, you can let it ride as you continue to pay down your mortgage and make your way toward 100% home ownership.