Find your current equity, how much you can borrow, and how your equity grows over time — including the impact of extra mortgage payments.
See how your equity grows from principal paydown and appreciation combined.
| Year | Home Value | Loan Balance | Equity | Equity % | Max Borrow (80%) |
|---|
See how much time and interest you save by adding extra principal payments each month.
Home equity is the portion of your property's value that you actually own outright — the difference between what your home is worth and what you still owe on your mortgage. If your home is valued at $350,000 and your remaining mortgage balance is $220,000, you have $130,000 in equity. As you make mortgage payments and as your home appreciates in value, your equity grows from both directions simultaneously.
Equity is one of the primary ways homeowners build long-term wealth. Unlike the interest portion of mortgage payments (which goes to the lender), each principal payment directly increases your ownership stake. Over a 30-year mortgage, early payments are mostly interest, but the equity-building component increases each month as your balance falls.
Your loan-to-value ratio is the outstanding mortgage balance divided by the home's current market value, expressed as a percentage. LTV = (mortgage balance ÷ home value) × 100. A $220,000 balance on a $350,000 home gives you an LTV of 62.9%. Lenders care deeply about LTV because it measures their risk. The lower your LTV, the more equity you have cushioning the lender's position.
An LTV above 80% typically triggers private mortgage insurance (PMI) on conventional loans. Falling below 80% LTV is a key milestone — it's when you can request PMI removal and when home equity borrowing becomes most accessible. An LTV above 100% means you're underwater — you owe more than the home is worth.
Most lenders cap total debt (first mortgage plus HELOC or home equity loan) at 80–85% of your home's appraised value. This is called the combined loan-to-value limit (CLTV). The formula this calculator uses is: Max borrowing = (Home value × 0.80) − Current mortgage balance. On a $350,000 home with a $220,000 balance, you could borrow up to $60,000 ($280,000 limit minus $220,000 owed). Some credit unions and portfolio lenders go to 90% CLTV, especially for strong borrowers.
A HELOC (Home Equity Line of Credit) is a revolving credit line — you draw what you need up to the limit, pay it back, and draw again. Interest rates are variable, tied to the prime rate. Good for ongoing projects or when you're not sure of the total cost. A home equity loan is a one-time lump sum at a fixed rate and fixed payment — predictable, good for a specific large expense. A cash-out refinance replaces your entire first mortgage with a new, larger loan and pays you the difference in cash. It can be advantageous if refinancing gets you a lower rate anyway, but it resets your loan term and carries higher closing costs.
Many rural property buyers use HELOC or home equity loan proceeds as the down payment on vacant land or a rental property. This strategy lets you acquire income-producing or appreciating assets without liquidating savings. The risk is that you're putting your primary home as collateral — if the investment goes wrong, you could jeopardize your home. Run the numbers carefully with a rental ROI calculator before using equity to fund investment property purchases.
Under current US tax law, interest on a HELOC or home equity loan may be tax-deductible if the loan proceeds are used to "buy, build, or substantially improve" the home securing the loan. Interest is generally not deductible if you use the funds to pay off credit card debt, buy a car, or fund a vacation. Tax laws change — consult a qualified tax advisor for your specific situation before making financial decisions based on assumed deductibility.
Home equity = current home market value minus outstanding mortgage balance(s). If your home is worth $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. Include all liens (first mortgage, second mortgage, HELOC balance) in the total debt figure for an accurate picture.
Most lenders require a combined LTV of 80% or less after the HELOC is added. That means you need at least 20% equity in your home. Some lenders allow up to 85–90% CLTV, particularly for borrowers with strong credit scores (720+). The better your credit and income, the more flexibility you'll have on LTV limits.
You need at least 20% equity (80% LTV or lower) to avoid or remove private mortgage insurance on a conventional loan. If your home has appreciated and you believe your LTV has dropped below 80%, you can request a formal appraisal and ask your lender to cancel PMI. For loans originated after July 1999, lenders are legally required to automatically cancel PMI when the balance reaches 78% of the original purchase price.
Equity builds through two mechanisms: principal paydown from your mortgage payments, and appreciation in your home's value. In the early years of a 30-year mortgage, monthly payments are heavily weighted toward interest, so paydown is slow. A $300,000 loan at 7% builds only about $3,000 in principal in year one. Appreciation can add much more — a 3% annual gain on a $350,000 home adds $10,500 in paper equity in one year. Extra principal payments dramatically accelerate equity building by reducing the balance on which interest accrues.
Yes. Options include selling the home (which realizes all equity minus selling costs), a reverse mortgage for homeowners 62+ (converts equity to payments without requiring payback while you live there), or a shared equity agreement where an investor gives you cash now in exchange for a portion of future appreciation. Each option has distinct costs, benefits, and risks worth comparing before deciding.