How To Calculate How Much Home Equity You Have

If you’d like to borrow against your home’s equity, one of the first things a lender will look at is your loan-to-value ratio (LTV). 

Your lender will do the math for you, but you can find this percentage yourself. Divide your mortgage balance by the appraised value and multiply it by 100. Using the example above, $330,000 divided by $495,000 is .66 for an LTV of 66%. Put another way, you have about 34% equity in your home, which may put you in a good position to tap your home’s equity. Two of the most popular ways to do that are through a home equity loan or home equity line of credit (HELOC). 

Home Equity Loans

A home equity loan is a lump sum of money repaid over a fixed period, typically in monthly payments up to 30 years. When considering your loan application, lenders will probably look at your credit score, income and LTV. Once approved, you may be able to borrow up to 80% of the equity in your home. Using the example above, if you have $165,000 in home equity, you could borrow up to 80% or $132,000. 

You could use that cash to repair or renovate a home or pay off high-interest debt, medical expenses, college tuition, or other expenses. If you fail to repay the loan on time, the lender might be able to foreclose on it.

Home Equity Lines of Credit (HELOCs)

Like a home equity loan, a home equity line of credit is secured by your home, which means you once again risk foreclosure if you cannot repay it. A big difference is that HELOCs give you a line of credit you may draw down as needed. Payments typically begin when the draw period ends, though you will probably have to make smaller, interest-only payments in the meantime.  

A home equity loan may be more helpful if you need a specific amount and prefer a fixed interest rate. HELOCs usually have variable rates, meaning your payments might fluctuate over time. No matter which you choose, compare lenders to find the lowest rates and fees. Make sure you understand their terms, rates, and fees.