Home Equity

The portion of your home's value that you truly own

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Definition

Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. It represents the portion of your home you actually own. Equity grows over time as you pay down your mortgage principal and as property values appreciate. It can be accessed through a HELOC, home equity loan, or cash-out refinance.

Example

You bought a home for $350,000 with a $70,000 down payment, so you started with $70,000 in equity. After 5 years of mortgage payments, your balance is $262,000 and your home has appreciated to $420,000. Your equity is now $420,000 − $262,000 = $158,000. This $158,000 represents both your original down payment, principal paid down ($18,000), and market appreciation ($70,000).

How It's Calculated

Home Equity = Current Market Value − Outstanding Mortgage Balance. Equity as a percentage: (Equity ÷ Market Value) × 100. The inverse is Loan-to-Value (LTV) ratio: Mortgage Balance ÷ Market Value.

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Related Terms

Home equity is one of the most significant assets most homeowners accumulate. Building equity quickly — through extra principal payments, choosing a shorter loan term, or benefiting from market appreciation — gives you a financial cushion and borrowing power when you need it. Our HELOC calculator shows how much equity you can access and how to pay it back efficiently.