Home Equity Calculator
Equity is what the property is worth less what is owed on it. Borrowing against it does not create money — it converts equity into debt secured on your home.
Your equity
$190,000.00
- Equity
- $190,000.00
- Equity as % of value
- 42.2%
- Current loan to value
- 57.8%
- Lender ceiling
- $382,500.00
- You could borrow
- $122,500.00
- Equity is what the property is worth less what is owed on it. Borrowing against it does not create money — it converts equity into debt secured on your home.
- Lenders rarely go past 80 to 85 per cent of value on a second charge, and the value they use is their valuer's rather than yours.
- A valuation is an estimate until someone buys. Sizing a loan against an optimistic one is how people end up owing more than the house is worth.
About home equity
Equity grows two ways: you repay the balance, and the property changes value. Only one of those is under your control, and only one of them is certain. A $450,000 house with $260,000 owed has $190,000 of equity and a 57.8% loan-to-value.
Lenders lend against a combined loan-to-value — everything secured on the property, including the first mortgage. Most stop somewhere between 80 and 85 per cent. At 85% the ceiling on this house is $382,500, and with $260,000 already owed that leaves $122,500 available.
The valuation is the soft part of all this. Yours is an opinion until someone buys; the lender will use their own valuer's and it is frequently lower. Sizing a loan against an optimistic number is how people end up owing more than the house is worth, which matters the moment they need to sell.
It is also worth being clear about what the borrowing is. A home equity loan or line is secured on the house, which is why the rate is lower than an unsecured one — the lender can take the house. That trade is fine for something that adds value or clears far more expensive debt, and poor for consumption.
What it works out
- Equity in money and as a share of value
- Current loan-to-value
- What a lender would advance at their maximum
- Any combined loan-to-value limit
The formula
Equity = Value − Balance Available = (Value × Max LTV) − Balance
Equity is a subtraction. $450,000 less $260,000 is $190,000, which is 42.2% of the value; the loan-to-value is the other 57.8%.
What you can borrow is a different number and always smaller, because no lender advances the whole of your equity. They set a ceiling on everything secured against the property together. At 85% of $450,000 that ceiling is $382,500, and the existing $260,000 comes off it, leaving $122,500.
Note that the ceiling moves with the valuation and the deduction does not. A ten per cent fall in value takes $38,250 off the ceiling and nothing off the balance, so what you could borrow falls from $122,500 to $84,250 — close to a third of it, from a ten per cent move. Equity is leveraged in both directions.
That leverage is the thing to keep in view. Borrowing to the ceiling leaves no room for the valuation to have been optimistic.
- Value
- What the property is worth. The lender will use their valuer's figure, not yours.
- Balance
- Everything already secured on it, including the first mortgage.
- Max LTV
- The lender's ceiling on total secured debt, usually 80% to 85%.
A worked example
A $450,000 house with $260,000 owed, against a lender who goes to 85% combined loan-to-value.
That works out to $190,000.00 .
- Equity
- $190,000.00
- Equity as % of value
- 42.2%
- Current loan to value
- 57.8%
- Lender ceiling
- $382,500.00
- You could borrow
- $122,500.00
Questions
How do I calculate home equity?
The property's value less everything secured on it. A $450,000 house with $260,000 owed has $190,000 of equity.
How much of my equity can I borrow?
Less than all of it. Lenders cap total secured debt at 80 to 85 per cent of value, so on this house the ceiling is $382,500 and $122,500 is available after the existing mortgage.
What is loan-to-value?
The balance as a percentage of the value — 57.8% here. It is the number lenders price against: a lower loan-to-value gets better rates, and crossing 80% is what ends mortgage insurance.
Does home improvement increase my equity?
Sometimes, and rarely pound for pound. A kitchen costing $30,000 does not usually add $30,000 of value, and some work adds almost nothing. Treat spending on the house as spending unless you have evidence for the local market.
Should I borrow against my home?
It is secured debt, which is why it is cheap and why it is serious — the lender can take the house. Reasonable for clearing far more expensive debt or work that genuinely adds value. Poor for consumption, because you are securing a holiday against your home for twenty years.
What happens if the value falls?
Your equity falls by the whole amount, since the balance does not move. A ten per cent fall here removes $45,000 of equity — nearly a quarter of it. That is the argument for not borrowing to the ceiling.
Is a home equity loan the same as a line of credit?
No. A loan is a lump sum at a fixed rate repaid over a set term. A line of credit is a facility you draw on, usually at a variable rate, with an interest-only period before repayment starts — and a payment that jumps sharply when it does.