How home equity works
Home equity is the portion of your home you truly own — your home's current market value minus what you still owe on the mortgage. It grows two ways: as you pay down your mortgage principal each month, and as your home appreciates in value over time.
Using home equity to borrow
Once you have enough equity, you can access it through a HELOC (home equity line of credit) or home equity loan. Most lenders require at least 15–20% equity remaining after the loan, meaning they'll lend up to 80–85% of your home's combined value (CLTV). The calculator above estimates your borrowing limit at both thresholds.
LTV ratio explained
LTV (loan-to-value) is your mortgage balance divided by your home's value. LTV below 80% means you have at least 20% equity — the key threshold for avoiding PMI on a conventional loan, qualifying for better refinance rates, and accessing HELOCs. Use our refinance calculator to see if lower rates are available to you.
A real example
Say your home is worth $400,000 and you owe $280,000 on your mortgage — that's $120,000 in equity, or 30%. At an 80% CLTV limit, a lender would let you borrow up to $320,000 total against the home ($400,000 × 80%). Subtract your existing $280,000 mortgage, and you could access roughly $40,000 through a HELOC or home equity loan, before accounting for your income, credit score, and DTI, which the lender will also verify.
HELOC vs. home equity loan
A home equity loan gives you a lump sum upfront at a fixed rate, repaid on a set schedule — similar to a second mortgage. A HELOC works more like a credit card: you're approved for a credit line and draw from it as needed, usually at a variable rate, during a set "draw period" before repayment begins. Home equity loans suit one-time expenses with a known cost, like a kitchen remodel; HELOCs suit ongoing or uncertain expenses, like a multi-phase renovation, where you don't want to pay interest on money you haven't used yet.