Complete guide
Reviewed July 2026Home equity is the share of your property you truly own — the current market value minus everything you still owe on it. It builds two ways: every mortgage payment chips away at your balance, and rising home prices lift your value. For most homeowners it becomes their single largest source of borrowing power.
But you can rarely borrow all of your equity. Lenders cap total borrowing at a combined loan-to-value (CLTV) of roughly 80–85% of the home's value, keeping a cushion in case prices fall. The amount left after that cap is your tappable equity — what a HELOC or home equity loan can actually unlock.
This calculator shows both numbers: your total equity, and the realistic amount you could borrow after the CLTV limit and your existing mortgage are subtracted. Below we explain the math, the difference between a HELOC and a lump-sum loan, and the traps to avoid.
How home equity is calculated
Equity = Home value − Total mortgage balance Max borrowing = (Home value × CLTV limit) − Mortgage balance CLTV limit is typically 0.80–0.85 depending on lender and credit.
Total equity is simple ownership. Tappable equity is what lenders will let you access after keeping their safety margin. The gap between them is the cushion the lender insists on.
Worked example
- Home value $500,000, remaining mortgage $300,000.
- Total equity = 500,000 − 300,000 = $200,000 (40% of the home).
- At an 85% CLTV cap: 500,000 × 0.85 = $425,000 of allowed total debt.
- Subtract the existing mortgage: 425,000 − 300,000 = $125,000 tappable.
- So although you 'own' $200,000, you could borrow about $125,000 via a HELOC or equity loan.
HELOC vs home equity loan
Both are secured by your home, which means lower rates than unsecured debt — but also that missed payments put the house at risk. A HELOC suits rolling expenses like a phased renovation; a fixed home equity loan suits a single large bill such as debt consolidation or one big project.
| Feature | HELOC | Home equity loan |
|---|---|---|
| Structure | Revolving credit line | One-time lump sum |
| Rate | Usually variable | Usually fixed |
| Best for | Ongoing or uncertain costs | A known, one-time expense |
| Payment | Interest-only draw period, then repayment | Fixed payment from day one |
| Risk | Payment can rise with rates | Predictable but less flexible |
Common uses — and cautions
- Home improvements that add value are the classic use and may keep interest deductible in some cases.
- Debt consolidation can cut interest, but converts unsecured debt into debt secured by your home.
- Avoid tapping equity for depreciating purchases or day-to-day spending — you are mortgaging your future.
- Leave a buffer: borrowing to the maximum leaves no room if home values dip.
Getting the most from your equity
- Get a realistic value — a recent comparable-sales estimate or appraisal, not a hopeful guess.
- Enter every loan secured by the home, including any existing second mortgage.
- Use a CLTV cap that matches your credit; stronger borrowers reach 85%, others 80%.
- Compare the tappable amount against the actual cost of your project before applying.
- Shop at least three lenders — rates, caps and fees on equity products vary widely.
Frequently asked questions
Glossary
- Equity
- Home value minus everything owed against it — the part you own.
- Tappable equity
- The borrowable portion after the lender's CLTV cap and current mortgage are subtracted.
- CLTV
- Combined loan-to-value; all secured loans divided by home value, usually capped at 80–85%.
- HELOC
- Home equity line of credit — a revolving, usually variable-rate credit line secured by your home.
- Home equity loan
- A fixed-rate lump-sum second mortgage repaid in equal installments.
- Second lien
- A loan secured by the home that ranks behind the first mortgage if the property is sold or foreclosed.
- Underwater
- Owing more on the home than it is currently worth.
Key takeaways
Home equity is your home's value minus what you owe; it grows through payments and appreciation.
You can usually borrow only up to an 80–85% CLTV cap, so tappable equity is less than total equity.
Choose a HELOC for flexible, ongoing costs and a fixed home equity loan for a single known expense — and always leave a cushion.
Enter your home's value and mortgage balance above to see your total equity and how much you could realistically borrow today.