Home Equity
Home Equity Calculator
See how much equity you've built and how much you can borrow with a HELOC or home equity loan — based on your lender's combined LTV limit.
How the home equity calculator works
Home equity is straightforward to calculate: Equity = Home Value − Mortgage Balance. What's less obvious is how much of that equity you can actually access through a lender. Banks and credit unions don't let you borrow against 100% of your equity — they use a combined loan-to-value (CLTV)limit, typically 80–90% of the home's appraised value.
The combined LTV is calculated across both your first mortgage and any home equity debt. If your home is worth $400,000 and your lender caps CLTV at 85%, you can have a maximum of $340,000 in total mortgage debt. Subtract your existing $280,000 first mortgage and your maximum HELOC or home equity loan is $60,000.
The formula
Equity = Home Value − Mortgage Balance Current LTV = Mortgage Balance / Home Value Max combined debt = Home Value × (CLTV limit / 100) Max borrowable = Max combined debt − Mortgage Balance
HELOC vs home equity loan
Both products let you tap your home equity, but they work differently:
- HELOC: Variable-rate revolving line of credit. Draw period is typically 10 years (interest-only payments), followed by a 20-year repayment period. Rates are usually prime + a spread based on your credit score. Best for ongoing expenses like renovations you'll complete in phases.
- Home equity loan: Fixed-rate lump sum, repaid in equal monthly installments over 5–30 years. Predictable payments — best for a single large expense like a major renovation, medical bill, or debt consolidation.
When to use home equity
Home equity borrowing typically makes sense when:
- Home improvements — proceeds used for capital improvements may be tax-deductible (consult a tax advisor); renovations can also increase your home value
- Debt consolidation — HELOC rates (prime + 0–3%) are typically far lower than credit card rates (18–28%), making consolidation financially effective if you have the discipline not to re-accumulate debt
- Major one-time expenses — tuition, medical costs, or emergency repairs where the interest rate is materially lower than alternatives
Home equity borrowing is not recommended for everyday expenses, vacations, or depreciating assets. Your home is the collateral — a missed payment can lead to foreclosure.
Key concepts
- LTV — Loan-to-Value Ratio
- LTV is your mortgage balance divided by your home's appraised value. An LTV above 80% typically requires PMI. As you pay down your mortgage and/or your home appreciates, LTV falls and equity grows.
- CLTV — Combined Loan-to-Value
- CLTV adds your first mortgage and any second mortgage (HELOC or HEL) together before dividing by home value. Lenders use CLTV to set borrowing limits, not just your standalone LTV.
- Prime rate
- The U.S. prime rate is the benchmark interest rate banks use for short-term lending. As of 2024 it's approximately 8.5%. HELOC rates are expressed as prime + a spread (e.g., prime + 1%). When the Fed raises rates, your HELOC rate moves with it.
Frequently asked questions
What counts as home value for equity purposes?
Lenders order a formal appraisal — typically $300–$600. For estimation purposes, you can use Zillow's Zestimate or recent comparable sales (comps) in your neighborhood. Note that online estimates can be 5–15% off in either direction, especially in fast-moving markets. The bank's appraisal is what matters for the actual loan.
How long does it take to get a HELOC?
Typically 2–6 weeks from application to funds availability. The process includes a formal appraisal, title search, credit check, and underwriting. Some lenders offer streamlined "no-appraisal" HELOCs for low-LTV borrowers, which can close in 1–2 weeks.
Can I get a HELOC on an investment property?
Yes, but it's harder. Investment property HELOCs typically require a lower CLTV (often 70–75%), higher credit score (usually 720+), and carry a higher rate spread than primary residence HELOCs. Some lenders don't offer them at all.
Are HELOC interest payments tax-deductible?
Since the 2017 Tax Cuts and Jobs Act, HELOC interest is only deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan. Interest on HELOC funds used for other purposes (debt consolidation, vacations, etc.) is not deductible. Consult a tax professional for your specific situation.
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Disclaimer:This calculator provides estimates for educational purposes. Actual borrowing capacity depends on your lender's underwriting criteria, a formal appraisal, your full credit profile, and debt-to-income ratio. Rate estimates are approximate. Consult a mortgage professional before making home equity borrowing decisions.