How the calculator works
The CFPB defines home equity as what your property is worth minus what you owe on it. The calculator adds up every loan secured by the home and subtracts it from your value estimate. Then it turns that into the ratios lenders use:
- Equity % = equity ÷ home value.
- LTV (loan-to-value) = first mortgage ÷ home value. The CFPB notes that a higher LTV usually means higher rates and may mean mortgage insurance.
- CLTV (combined loan-to-value) = all loans secured by the home ÷ home value.
- Could borrow = home value × the lender's maximum CLTV − all existing loans, never less than zero. The CFPB's HELOC booklet says lenders generally lend a percentage of the appraised value minus what you owe. The percentage is each lender's choice, so the presets (80%, 85%, 90%) are examples to try.
- Equity after selling = value × (1 − selling cost %) − all loans. Enter your own estimate for commission and closing costs.
- Value drop before underwater = your equity. If the home loses more than that, you would owe more than it is worth.
The optional projection pays your first mortgage down on its normal schedule, holds other loans flat, and grows the home value by the rate you choose. It starts at 0% because nobody can promise prices will rise.
Worked example
Your home would sell for about $650,000. You owe $380,000 on the first mortgage and $40,000 on a HELOC.
| Measure | Math | Result |
|---|---|---|
| Equity | $650,000 − $420,000 | $230,000 (35.4%) |
| LTV | $380,000 ÷ $650,000 | 58.5% |
| CLTV | $420,000 ÷ $650,000 | 64.6% |
| Could borrow at 85% CLTV | $552,500 − $420,000 | $132,500 |
| Could borrow at 80% CLTV | $520,000 − $420,000 | $100,000 |
| Equity after 6% selling costs | $611,000 − $420,000 | $191,000 |
With a 6.5% rate and 25 years left, the first mortgage falls to about $344,100 in five years. If the home's value stays flat, equity grows to about $265,900 from payments alone. If the value rises 3% a year instead, the home would be worth about $753,500 and equity would be about $369,400. Treat the growth case as a scenario, not a forecast.
Using equity: the options
- HELOC: a reusable line with a variable rate. Estimate payments with the HELOC payment calculator.
- Home equity loan: a lump sum, usually at a fixed rate, according to the CFPB.
- Cash-out refinance: replaces your first mortgage with a bigger one. Try the cash-out refinance calculator.
Edge cases
- PMI: the CFPB says conventional loans usually need PMI with less than 20% down, and refinancing with less than 20% equity usually brings it back. Removing existing PMI generally depends on the home's original value. See the PMI calculator.
- Other liens: any other debt recorded against the home must be paid off at a sale too. Include it in “other liens”.
What to do next
If you plan to sell, run the full numbers with the home sale proceeds calculator. If you plan to borrow, compare options in HELOC vs home equity loan vs cash-out refinance.