What Is Home Equity and How to Calculate It

What it is

Home equity is the share of your home that you actually own outright. It is the difference between what your home is worth today and what you still owe on any loans secured by it. If your home rose in value, or you paid down your mortgage, or both, your equity grew. Equity is a real, spendable form of wealth in the sense that it can be borrowed against or realized when you sell — but until then it sits inside the home rather than in a bank account.

How to calculate it

The core formula is stable and simple:

Home equity = current home value − outstanding mortgage balance

"Current home value" is your best estimate of what the home would sell for today (an automated valuation, an appraisal, or a comparative market analysis (an agent's pricing estimate from comparable nearby sales)). "Outstanding mortgage balance" is the payoff amount on every loan tied to the home — your first mortgage plus any second mortgage, home equity loan, or HELOC (home equity line of credit) balance.

A worked example:

• Estimated home value: $500,000
• Remaining mortgage balance: $300,000
• Home equity = $500,000 − $300,000 = $200,000

You can also express equity as a percentage of the home's value, which lenders and dashboards often use:

Equity as a percent = equity ÷ value

In the example above: $200,000 ÷ $500,000 = 40%. So you own 40% of the home's value, and the remaining 60% is still financed. This percentage is the mirror image of your loan-to-value (what you owe divided by the home's value) ratio (a 40% equity share means a 60% loan-to-value).

How to think about it

A few things are worth keeping straight:

• Value is an estimate, not a fact. Two valuation tools can disagree. Equity moves with whatever value figure you plug in, so treat the number as a range rather than a precise dollar amount until a sale or appraisal confirms it.
• Only home-secured debt counts. Credit cards, car loans, or personal loans do not reduce home equity, even though they affect your overall finances. Only balances secured by the home enter the formula.
• Not all equity is reachable. The equity you could actually borrow against ("borrowable equity") is smaller than your total equity, because lenders cap how much combined debt they will allow against the home.
• Equity grows two ways over time — the home's value rising (appreciation) and each mortgage payment retiring a little more principal (paydown). Later articles in this module cover how those two forces combine over time and ways to build equity faster.

For landlords, the same formula applies to each rental property. Equity across several properties is simply the sum of each property's value minus each property's loan balance.