Home equity is the portion of your home that you truly own. It’s the difference between what your home is worth today and what you still owe on any mortgages or liens. As you pay down your loan
and/or your home’s value goes up, your equity typically grows over time.
Your home is worth $400,000 and you owe $250,000 on your mortgage. Your home equity is 400,000 − 250,000 = 150,000.
Your home is worth $450,000 and your mortgage balance is $215,000. Your equity is 450,000 − 215,000 = 235,000, which is about 52% of the home’s value.
If you put 20% down on a $400,000 home ($80,000), you start with $80,000 of equity on day one, and that number can grow as you pay down the loan or the value increases.
Homeowners generally access equity either by selling the home or by borrowing against it.
Lump-sum second mortgage with a fixed rate
and fixed monthly payment over a set term.
One-time needs like debt consolidation,
renovations, tuition, or major purchases.
Revolving line of credit secured by your home;
works somewhat like a credit card with a
variable rate and a draw period followed by
repayment.
Ongoing or unpredictable expenses such as
phased home projects, seasonal cash flow,
or emergency funds.
Replaces your existing mortgage with a new,
larger one and gives you the difference in
cash; usually at a first-mortgage rate.
Larger, longer-term needs like big
renovations, paying off higher-interest
debt, or restructuring overall debt into one
payment.
All borrowing options above use your home as collateral, which means you could face foreclosure if you cannot repay.
Lenders usually limit how much of your equity you can tap (for example, often up to 80–85% of your home’s value, depending on credit, income, and guidelines).
Closing costs, interest rates, loan terms, and your long-term plans for the home should be reviewed carefully before choosing any home-equity product.
