What home equity is and how to find yours
Home equity is the difference between what your house is worth and what you still owe on your mortgage. If your home is worth $300,000 and you owe $180,000 on the loan, your equity is $120,000. That $120,000 is the portion of the house you actually own outright.
The calculation is straightforward: take your home's current market value, subtract your outstanding mortgage balance, and you have your equity. The tricky part is knowing what your home is actually worth, since that number changes with the market and varies depending on who is doing the valuing.
Your equity grows in two ways. First, every mortgage payment you make reduces what you owe, so your equity increases automatically. Second, if your home's value rises, your equity rises too—even if you haven't paid down the loan. The reverse is also true: if your home loses value, your equity shrinks, even if you've been making payments faithfully.
Key Takeaways
- Home equity equals your home's current value minus what you still owe on your mortgage.
- You can estimate your home's value using online tools, recent sales of similar homes in your area, or a professional appraisal.
- Your mortgage statement shows your outstanding loan balance; subtract that from your home's value to get your equity.
- Home equity increases as you pay down your mortgage and as your home's value rises.
- Knowing your equity matters because it affects your borrowing options, refinancing potential, and what you'll walk away with if you sell.
Finding your home's current value
The first step is estimating what your house would sell for today. This is not the price you paid for it or what your mortgage lender valued it at years ago—it's the realistic market value right now.
The easiest starting point is online valuation tools. Websites like Zillow, Redfin, and Realtor.com let you enter your address and get an when ready estimate. These tools use recent sales data, property records, and algorithms to guess your home's value. They are usually within 5 to 10 percent of actual value, but they can be off in neighborhoods where homes sell rarely or where each property is very different from its neighbors.
A more reliable method is to look at comparable sales—what similar homes in your area sold for recently. You can search your county assessor's website or a real estate site to find homes like yours that sold in the past three to six months. The closer the match (same size, age, condition, location), the more useful the comparison. If three similar homes sold for $295,000, $305,000, and $310,000, your home is probably worth somewhere in that range.
If you need an exact number—for refinancing, a home equity loan, or a legal matter—hire a professional appraiser. An appraisal costs $300 to $500 but gives you a formal, defensible valuation. Your mortgage lender can recommend an appraiser, or you can find one through the American Society of Appraisers.
Finding your outstanding mortgage balance
Your mortgage statement shows exactly how much you still owe. Look for the line that says "principal balance," "loan balance," or "amount owed." This is the number you need.
If you can't find your statement, log into your mortgage servicer's website—the company that collects your payments. Most servicers let you view your account online and see your current balance. If you're not sure who your servicer is, check your most recent payment coupon or call the number on the back of your mortgage statement.
If you have more than one loan on the property—a first mortgage and a home equity line of credit, for example—add both balances together. Your equity is your home's value minus the total of all loans against it.
The straightforward equity calculation
Once you have both numbers, the math is straightforward:
Home Value − Outstanding Mortgage Balance = Home Equity
Example: Your home is worth $350,000. You owe $210,000 on your mortgage. Your equity is $350,000 − $210,000 = $140,000.
You can also express equity as a percentage. Divide your equity by your home's value and multiply by 100. In the example above: ($140,000 ÷ $350,000) × 100 = 40 percent. You own 40 percent of the home; the lender owns 60 percent (the mortgage).
Why lenders care about your equity percentage
Banks and lenders use your equity percentage to decide whether to lend you money against your home. Most home equity loans and lines of credit require you to have at least 15 to 20 percent equity. Some lenders will go as low as 10 percent, but rates and terms are worse.
If you have less than 20 percent equity and you're paying a mortgage, you're also paying private mortgage insurance (PMI)—an extra monthly fee that protects the lender if you default. PMI typically costs 0.5 to 1 percent of your loan amount per year. Once you reach 20 percent equity, you can usually request that PMI be removed, which lowers your monthly payment.
Lenders care about equity because it's their safety net. If you stop paying and they have to foreclose, they sell the house to recover their money. The more equity you have, the more cushion they have if the sale price is lower than expected.
How equity changes over time
Your equity is not static. It moves with your mortgage payments and with changes in your home's market value.
Early in a mortgage, most of your payment goes toward interest, so equity builds slowly. As you get further into the loan, more of each payment goes toward principal, and equity builds faster. A 30-year mortgage paid over 15 years builds equity much quicker than one paid over 30 years, even if the monthly payment is higher.
Market value swings are outside your control. In a strong real estate market, your equity can jump significantly in a year or two. In a weak market or a neighborhood where values are falling, your equity can shrink even as you pay down the loan. During the 2008 housing crisis, many homeowners had negative equity—they owed more than their homes were worth—even though they had been making payments for years.
Tracking your equity annually helps you understand your financial position. Many homeowners check it when they refinance, consider a home equity loan, or think about selling.
What to do with your equity
Once you know how much equity you have, you have options. A home equity loan or line of credit lets you borrow against that equity at rates usually lower than credit cards or personal loans. A cash-out refinance lets you refinance your mortgage for more than you owe and pocket the difference. Some homeowners use equity to pay for major repairs, education, or debt consolidation.
These are not information programs—you're borrowing against your home, and if you can't repay, the lender can foreclose. But for major expenses, borrowing against home equity is often cheaper than other options.
If you're planning to sell, your equity is what you walk away with after paying off the mortgage and the real estate agent's commission. The more equity you have, the more cash you'll have for a down payment on your next home or for other goals.
Frequently Asked Questions
Can I have negative equity?
Yes. If your home's value drops below what you owe, you have negative equity (sometimes called being "underwater"). This happened to many homeowners after 2008. You can still live in the home and make payments, but you can't borrow against it, and if you sell, you'll owe money at closing instead of receiving cash.
How often should I recalculate my equity?
Once a year is reasonable if you're just tracking your progress. If you're considering a home equity loan or refinance, get a fresh estimate before you explore. Your mortgage balance changes every month, and home values can shift seasonally, so the number is always slightly different.
Does paying extra on my mortgage build equity faster?
Yes. Every extra dollar you pay toward principal reduces your loan balance and increases your equity when ready. Paying an extra $100 per month on a 30-year mortgage can cut years off the loan and save tens of thousands in interest while building equity much faster.
What if I just bought and have almost no equity?
That's normal. A typical down payment is 10 to 20 percent, so you start with that much equity. The rest comes from paying down the loan and waiting for the home to appreciate. After five to seven years of payments, most homeowners have enough equity to borrow against if needed.
Do I need an appraisal to know my equity?
No. Online estimates and comparable sales give you a good working number for personal planning. You only need a formal appraisal if a lender requires it—usually for a loan or refinance—or if you need a defensible number for legal or tax purposes.