Home Equity Calculator
Home equity is the portion of your home you actually own — current value minus what you still owe. Tracking it matters for PMI elimination, refinancing eligibility, HELOC access, and understanding your true net worth.
Enter your home value, mortgage balance, and rate to see your current equity, LTV ratio, when you hit 20%, and a year-by-year equity projection.
| Year | Home Value | Mortgage Balance | Equity | LTV |
|---|
How Home Equity Builds — and Why It Matters
Home equity grows through two mechanisms: principal paydown (each mortgage payment reduces the balance) and home appreciation (the property's market value increases). In the early years of a mortgage, principal paydown is slow because most of the payment goes to interest. A $400,000 mortgage at 7% in year one: roughly $2,333/month goes to interest and only $328 reduces principal. Over time, the mix shifts toward principal — and appreciation compounds on a growing value base.
Equity matters practically for three things: PMI elimination, borrowing access, and net worth. Once your LTV drops to 80%, you can request removal of PMI — typically $100–$250/month in savings. At 80% LTV, you can take out a HELOC for home improvements or other needs. And your equity is a major component of your net worth — understanding where it stands helps you plan.
The Two Equity Drivers: Paydown vs. Appreciation
In a normal housing market (3% annual appreciation), appreciation often contributes more to equity growth than principal paydown, especially in the first 5–10 years. On a $520,000 home at 3% appreciation, the home gains $15,600 in value in year one — while your principal paydown might be only $4,000. Over 10 years, appreciation alone adds ~$74,000 in equity (on top of paydown). In high-appreciation markets (5%+), appreciation can be the dominant factor. In flat or declining markets, paydown is the only equity builder.
| Year | Home Value | Balance | Equity | LTV |
|---|---|---|---|---|
| Now | $520,000 | $390,000 | $130,000 | 75.0% |
| Year 3 | $568,100 | $381,200 | $186,900 | 67.1% |
| Year 5 | $602,800 | $374,900 | $227,900 | 62.2% |
| Year 10 | $698,400 | $355,800 | $342,600 | 50.9% |
Removing PMI — How It Works
Private mortgage insurance (PMI) is required when your down payment is less than 20% (LTV above 80%). Once your LTV reaches 80% based on the original purchase price and scheduled payments, you can request cancellation. Under the Homeowners Protection Act, lenders must automatically cancel PMI when the balance reaches 78% of the original purchase price. If your home has appreciated significantly, you may reach 80% LTV sooner — but you'll need a new appraisal (typically $300–$500) to document the higher value.
To see how extra payments accelerate your equity buildup and bring you to the 20% threshold sooner, use the Extra Mortgage Payment Calculator. To access your equity through a HELOC, see the HELOC Calculator.
Frequently Asked Questions
How is home equity calculated?
Home equity = Current home value − Outstanding mortgage balance. If your home is worth $520,000 and you owe $390,000, your equity is $130,000 (25%). Equity grows as you pay down the principal and as the home value appreciates. It shrinks if you take out a HELOC, do a cash-out refinance, or if property values decline.
What LTV is needed to remove PMI?
You can request PMI cancellation when your LTV reaches 80% (20% equity) based on the original purchase price and scheduled payments. Lenders must automatically cancel at 78% LTV per the Homeowners Protection Act. If your home has appreciated, you can request earlier removal with a new appraisal showing 80% LTV on the current value.
How much can I borrow against my home equity?
Most lenders allow combined borrowing (first mortgage + HELOC or equity loan) up to 80%–85% of your home value. If your home is worth $520,000, the maximum combined debt is $416,000–$442,000. Subtract your mortgage balance to find the maximum HELOC amount. Some lenders go to 90%+ but at higher rates and stricter terms.
Does home appreciation count toward equity for PMI removal?
Yes, but you need to document it. If your home has appreciated since purchase, a new appraisal showing the higher value can establish that your LTV is below 80% — triggering PMI removal eligibility. The appraisal cost ($300–$500) is typically recovered within a few months of PMI savings.
Is home equity included in net worth?
Yes. Net worth = total assets − total liabilities. Your home value counts as an asset; your mortgage balance counts as a liability. Your equity (value minus balance) is the net contribution to your net worth. For most American homeowners, home equity is the largest single component of net worth — which is why tracking it and building it deliberately matters.
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