Home equity is one of the largest sources of wealth for most households — and one of the least understood. This guide explains what equity is, how it grows, and how much you can actually put to work.
What "equity" really means
Equity is the portion of your home you own outright. Take the current market value and subtract every loan secured against it (your primary mortgage plus any second mortgage or line of credit). Whatever's left is your equity. On a $400,000 home with a $250,000 mortgage, you hold $150,000.
Two forces that build equity
Paying down the mortgage. Every payment sends a slice toward principal; early on that slice is small, later it grows quickly. Rising home value. When your market appreciates, equity climbs even if you pay nothing extra — and it shrinks if values fall.
Why you can't borrow 100% of it
Lenders cap total debt against the property with a combined loan-to-value (CLTV) ratio, often 80–90%. At an 85% cap on a $400,000 home, total borrowing can't exceed $340,000; subtract a $250,000 mortgage and about $90,000 is available. Our home equity calculator runs this for your numbers.