How much equity do you have in your home?

A couple calculating how much equity they have in their home.

Home equity is the difference between the current appraised value of your home and the total amount you owe.

Having equity in your home may help you get a home equity loan, home equity line of credit (HELOC), or another type of financing.

How to calculate the equity you have in your home

To see how much home equity you currently have, you have the option to look online to estimate your home's current market value or hire a professional appraiser.

Then, add up the outstanding mortgage debt on your home, including any second mortgages, and the balance of any loans secured against your property.

Your estimate of available home equity can be calculated by subtracting what you owe from the current estimated value of your home.

As an example, if your home is currently valued at $300,000 and you owe $120,000 on your mortgage, your available home equity is $180,000.

Using a tool like this loan amount calculator from Discover® Home Loans may give you an idea of how much you may be able to borrow against your home equity with a home equity loan or mortgage refinance.

This monthly payment calculator can show you estimated monthly payments and term options on a home equity loan and mortgage refinance from Discover Home Loans.

Both tools may help you find the solution that works best for your financial future.

Combined loan-to-value (CLTV) ratio and home equity

Lenders often use the combined loan-to-value (CLTV) ratio to help determine how much you may be able to borrow against your home equity.

CLTV is calculated by adding your current mortgage balance(s) and the balance of any other loans secured by your property to your potential new loan amount. You then divide that total amount by your appraised home value.

For example, say your home is valued at $300,000, and you have $120,000 remaining on your mortgage. That means you have $180,000 in home equity. If you would like to borrow $75,000 against your home equity, your CLTV would be as follows:

($120,000 + $75,000) / $300,000 = 65% CLTV

LEARN MORE: What is a loan-to-value ratio and how is it calculated?

Lenders typically set CLTV limits that determine how much you may be eligible to borrow. These limits can vary so it’s a good idea to research and compare different lenders.

Discover Home Loans offers low fixed rates on home equity loans up to 90% CLTV with $0 application fees, $0 origination fees, $0 appraisal fees, and $0 costs due at closing.

Determining your home's value

A lender will likely require an appraisal of your home’s value when you want to borrow against your equity.

Some of the factors a professional appraiser may use to determine your home’s value include:

The size of your home
The location of your home
Your neighborhood
Comparable homes in your area
Any upgrades you have made to your home
The construction quality of your home.

Some lenders use data to determine your home’s value. One model that may be used is called the automated value model (AVM). This model estimates home value based on comparable data, such as sale prices of similar homes in the area.

LEARN MORE: Understanding the home appraisal report

How to increase your available home equity

Did you know there are several things you can do that may increase your available home equity?

Home improvement projects: Investing in home improvement or renovation projects can not only enhance your living space, but may also boost the overall value of your property. Consider renovating a kitchen or bathroom, adding a fresh coat of paint to walls, or replacing outdated fixtures. These improvements may increase your home’s market appeal and result in a potentially higher appraisal value and greater equity.
Loan repayment strategies: Want to speed up the equity building process? Making extra payments toward your mortgage’s principal balance may help. By paying more than your regular monthly mortgage amount, you may be able to increase your ownership stake in your property. Just check with your mortgage provider to ensure there are no penalties for early payment.
Smart financial management: When you reduce or pay off high-interest debt, such as credit card balances, your monthly outgoings may be lower. You can use this freed-up money to pay more toward your mortgage and potentially increase equity.
Regular property maintenance: To preserve and enhance your investment in your home, keep your property in tip-top condition. Simple tasks like performing routine inspections, and making minor repairs may help keep your property’s value intact. A well-maintained home may see a higher market value, translating into a potential equity boost.

DIG DEEPER: The benefits of paying extra on your mortgage

What types of loans use your home equity to secure approval?

Here are a few loan products that use your home's equity to secure approval:

Home equity loans

A home equity loan is a type of second mortgage that uses your home equity as collateral. You can borrow a lump sum of money to spend on whatever you choose

Home equity loans typically come with fixed interest rates. This means that once you receive the funds from the loan, you will typically pay them back in fixed monthly payments over a set term.

HELOCs

Home equity lines of credit (HELOCs) are similar to home equity loans. However, instead of receiving the loan as a lump sum, you can pull funds up to a predetermined limit during a set time known as a draw period.

During the draw period, you may only be required to pay interest on the amount you borrow, but requirements can vary by lender. Once the draw period is over, a HELOC typically enters a repayment period where you pay the loans principal and interest.

HELOCs typically come with variable interest rates, so your monthly payment amount may go up or down depending on rate changes and other factors. HELOCs may also incur annual fees or transaction costs when you make withdrawals.

Mortgage refinance

When you refinance your mortgage, you’re basically replacing your current home loan with a new one. The new loan may come with a lower interest rate, different loan terms, or both.

When you apply for a mortgage refinance, a lender may look at your financial details such as your CLTV ratio to determine the loan amount you may qualify for.

Cash out refinance

A cash out refinance is a mortgage refinancing option that allows you to replace your existing mortgage with a new one while also accessing some of the equity you’ve accumulated in your home.

When you opt for a cash out refinance, you borrow more money than your current mortgage balance, and the extra amount is given to you in cash.

Closing thoughts: How to figure out your home equity

Hopefully, this article will help you find the value of your home’s equity and give you some inspiration on how to potentially grow that value over time.

Remember to make financial decisions that work in your favor, and take proactive steps to enhance the value of your home. With a little effort and planning, you may be able to leverage your current home equity to invest in a brighter financial future.

Please note: Discover Home Loans offers home equity loans and mortgage refinance opportunities but does not offer HELOCs.

Main: The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.