- Financial Term Glossary
- Home Equity
Home Equity
Home equity summary:
Home equity is calculated by subtracting what you owe on your mortgage or any home equity loans from your home’s fair market value.
Home equity tells you how much you might be able to borrow against the property.
When you apply for a home equity loan, the lender will calculate your equity.
Home equity definition and meaning
Home equity is the fair market value of your home minus the amount you still owe. It represents your home's unencumbered value—or the amount not owed to someone else. You could also think of it as the amount of your home that you own outright.
To calculate your home equity, you need to know your home’s current fair market value. You can usually get a ballpark figure from online real estate websites. Then subtract the amount that you still owe on your mortgage and any home equity loans you have. The result is your equity. If you’re applying for a loan, the lender will use its tools to calculate your equity, and the result might be different from your own result.
Key concept: Home equity is the amount your home is worth once you subtract any money you still owe on it.
More about home equity
Knowing the amount of equity you have in your home tells you a couple of things. First, you’ll know how much you could walk away with if you sell your home after paying fees and closing costs. It also gives you an idea of how much you could borrow against the property if the need arises.
Home equity: a comprehensive breakdown
To calculate your home equity, you need to know your home's current fair market value. You can usually get a ballpark figure from online real estate websites. Then subtract the amount that you still owe on your mortgage and any home equity loans you have. The result is your equity.
If you're applying for a loan, the lender will use professional tools to calculate your equity, and the result might be different from your own.
Here’s a simple example of how home equity is determined. Your home’s current appraised value is $400,000. You owe $200,000 on your mortgage, and you have a remaining balance of $20,000 on a home equity loan. Subtract the two balances (the mortgage and the home equity loan) from your appraised value:
400,000 - 220,000 = 180,000
In this scenario, $180,000 is the equity in your home, funds not owed to anyone else.
Home Equity FAQs
Could the condition of my home impact its equity?
Yes. The condition of your home could impact how much equity you have available, because it plays a role in the property’s fair market value. A home in better condition may be worth more on the open market.
Is a home equity loan a good substitution for a personal loan?
Either a home equity loan or a personal loan could be a good choice, depending on the situation.
Home equity loans tend to be bigger. However, you have to be a homeowner with sufficient equity to qualify.
Not everyone can apply for a home equity loan. You have to be a homeowner, and you have to have sufficient equity to qualify for the loan you want.
Personal loans are often a good choice when the amount you need is smaller.
What is the difference between a mortgage and a home equity loan?
A home equity loan is a type of mortgage. Mortgages are loans that are secured by real estate.
Home equity loans are limited by how much equity you have. Home equity is the difference between what your home is worth and the amount you still owe on your mortgage.
Related Articles
Your home’s value can be a powerful financial tool. Learn how to calculate home equity, and how to make it work for you.

A home equity loan is a way to get cash from your home’s value without selling it. They can have much lower interest rates and affordable monthly payments. Learn more...

The value you’ve built in your home could help you reach your financial goals. Find out how a home equity loan can help you pay off debt.
