How to calculate how much equity you have in your home

The article is for educational purposes only. JPMorgan Chase Bank, N.A., currently offers home equity lines of credit (HELOCs) in select states and does not offer home equity loans in any state. Please talk with a Home Lending Advisor to see if home equity loans or HELOCs are available in your state. Any information described in this article may vary by lender.

Quick insights

• To calculate your home equity, subtract your remaining mortgage balance (the amount you still owe) from your home’s current market value (the amount your home would likely sell for in the current market).
• Understanding your equity can help you decide whether to explore options like home equity loans, lines of credit (HELOCs) or cash-out refinancing.ec-refinance-hl000061
• Calculating your home equity also allows you to assess other financial options, then make strategic decisions.

Having a clear idea of how much equity you have in your home can be helpful for several reasons. Whether you’re considering refinancing, borrowing against your equity or planning ahead, knowing your current equity can help you move forward. Here’s a guide to calculating how much equity you have in your home, but first let’s cover the basics.

Understanding home equity

Simply put, home equity is the difference between the current market value of your home and the amount you still owe on your mortgage. Over time, as you pay down your loan or your home’s value increases, your equity grows. Learning about your equity  can give a clearer view of your finances, especially if you’re considering refinancing, selling or borrowing against your property. This is why many homeowners are curious, “how much equity do I have in my home?” Knowing the answer can help you make educated decisions about leveraging your property.

How to calculate home equity

Calculating your home equity can help you better understand your financial position. The calculation usually takes just a few steps. Here’s an example to guide you through the process.

1. Determine your home’s value

Let’s assume your home is currently worth $350,000. To determine its value, you can research recent sales of similar properties in your area, consult with a real estate agent or hire an appraiser to get a professional assessment.

2. Subtract your remaining mortgage balance

Next, look at your mortgage statement or contact your lender to find out how much you still owe. In this example, let’s say your remaining mortgage balance is $200,000.

3. Take the difference as your equity

Now, subtract your mortgage balance from your home’s value:

$350,000 (home value) - $200,000 (mortgage balance) = $150,000

So, your home equity is $150,000, which you could potentially use for a home equity loan, line of credit or even as a deciding factor in selling your home.

How to access your home equity

Accessing your home equity can provide you with a source of money and serve various needs, such as funding renovations or debt consolidation. There are several ways to tap into your home equity.

Home equity loans

A home equity loan allows you to borrow a lump sum of money based on the equity in your home, typically at a fixed interest rate. This is ideal if you need a large amount of money for a specific purpose and prefer predictable monthly payments. With a home equity loan, you repay the borrowed amount over a set period, often 10 to 30 years.

Home equity line of credit (HELOC)

A HELOC allows you to borrow against your home’s equity, specifically by providing a line of credit with a specific limit. You can draw from a HELOC as needed during the “draw period,” which usually lasts 5-10 years. After that, you’re responsible for repaying what you borrowed, plus interest. Your home serves as collateral, so it’s critical to make timely payments when they’re due. Draw and repayment periods vary by lender.

Cash-out refinance

 A cash-out refinance involves refinancing your existing mortgage for more than you owe and taking the difference in cash. This option can be a good choice if mortgage rates are lower than when you initially purchased your home. Keep in mind, you’ll be resetting the terms of your mortgage, potentially extending your loan and increasing your monthly payments.

Calculating loan-to-value ratio

When exploring how to access your home equity, the loan-to-value (LTV) ratio is important to understand. Lenders use it to assess risk. Your LTV ratio is your mortgage balance divided by your home’s appraised value (then multiplied by 100 to get the percentage). For example, if you have a mortgage balance of $200,000, and your home is valued at $350,000, the calculation would be:

($200,000 / $350,000) x 100 = 57.14%

In this case, your LTV ratio is 57%, meaning you have about 43% equity in your home. Lower LTV usually indicates higher home equity, while higher LTV means you have less equity in your home.

What is a good LTV?

A lower LTV (typically under 80%) indicates that you have a larger equity stake in your home. This lower level of borrowing is usually seen as less risky by lenders, which could result in lower interest rates, better loan terms and the possibility of avoiding private mortgage insurance (PMI). 

A higher LTV (above 80%) means you’re borrowing a larger percentage of your home’s value, which may be considered riskier for lenders. In this instance, loan providers may offer higher interest rates, require PMI or impose stricter approval criteria.

In summary

Calculating how much equity you have in your home is a simple but important step in understanding your financial position. By determining your home’s current value, subtracting your remaining mortgage balance and taking the difference, you can learn how much equity you have. Calculating how much equity you have in your home can open up financial opportunities like home equity loans, a HELOC or a cash-out refinance. In general, knowing your equity helps you make more informed decisions about managing your home and finances.