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What is home equity?
Discover how your home's estimated market value and outstanding mortgage balance determine the equity you have built.
Home equity, explained simply
Make smarter decisions about your home's equity.
Your home may be one of your most valuable financial assets. Get practical, easy-to-understand guidance on home equity loans, HELOCs, borrowing costs, and what to consider before you borrow.
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HOME EQUITY 101Learn the basics
What is home equity?
The difference between what your home is worth and what you owe on loans secured by it.
Good to know: The graphic is illustrative, not an estimate of
your home's value, available equity, or borrowing eligibility.
Consumer-friendly explanationsUnderstand costs and
risksCompare your options confidently
Start with the essentials
Understand the basics before you borrow.
Home equity financing can be helpful for certain goals, but knowing the terms, costs, and risks is essential.
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What affects loan costs?
Learn about interest rates, APR, closing costs, repayment terms, and why a low monthly payment doesn't always mean a lower total cost.
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Which loan type fits?
Explore how a home equity loan, home equity line of credit, and cash-out refinance differ so you can ask the right questions.
Plan before borrowing
Four steps toward a more informed decision.
Before tapping into your home's equity, consider your financial goals and ability to repay. Your home serves as collateral for these products.
- Know your goal. Define how much you need and what you'll use the money for.
- Check your budget. Make sure payments leave room for everyday expenses and emergencies.
- Compare offers. Look at interest rates, fees, terms, and total borrowing costs.
- Understand the risk. Missed payments can put your home at risk of foreclosure.
Estimate your equity
Subtract all loans secured by your home from its estimated current market value.
Review your finances
Consider income stability, current debts, credit history, and a comfortable monthly payment.
Compare lender quotes
Request written estimates and examine APR, fees, repayment schedules, and rate changes.
Read the fine print
Understand all obligations and ask questions before signing any loan documents.
Explore the differences
Understand your home financing options.
Different borrowing products have different structures, benefits, and tradeoffs. Here's how they generally compare.
Home Equity Loan
Receive an approved amount upfront and repay it over a set term. Many home equity loans offer fixed interest rates.
- May work for a known, one-time expense
- Predictable principal-and-interest payments with a fixed rate
- Closing costs and other fees may apply
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home that lets you draw funds as needed, subject to the lender's terms.
- May suit projects with expenses over time
- Often has a variable interest rate
- Payments may change over the life of the credit line
Cash-Out Refinance
Replace your existing mortgage with a new, larger loan and receive some of the difference in cash, subject to approval.
- Replaces your current mortgage rate and terms
- May extend or change your repayment schedule
- Closing costs and overall interest costs matter
Alternatives Worth Considering
Borrowing against your home isn't always the right solution. Compare other ways to finance an expense.
- Save or phase the expense over time
- Explore unsecured personal loans or payment plans
- Check for relevant assistance programs
Frequently asked questions
Answers to common home equity questions.
Build a clearer understanding of the details that matter when evaluating financing.
How do I calculate how much equity I have?
Subtract the balances of mortgages and other loans secured by your property from its estimated current market value. For example, a home worth $350,000 with $220,000 in secured debt has approximately $130,000 in equity. This does not mean the full amount is available to borrow.
Can I borrow all of my home equity?
Usually not. Lenders generally limit how much you can borrow relative to the property's value and consider your income, debts, credit profile, and other underwriting requirements.
Will applying affect my credit score?
It may. A lender may perform a hard credit inquiry during the application process, which can affect your credit score. Ask whether an initial rate check involves a soft or hard inquiry.
Can I keep my current mortgage rate with a home equity loan?
A separate home equity loan or HELOC generally does not replace your existing first mortgage, so the original mortgage rate typically remains unchanged. A cash-out refinance, by contrast, replaces the existing mortgage with a new one.
Is home equity loan interest tax-deductible?
Tax deductibility depends on applicable law, how the funds are used, and your individual circumstances. Consult current IRS guidance and a qualified tax professional rather than assuming the interest is deductible.
What happens if I cannot make the payments?
Because your home secures the debt, failure to repay may lead to foreclosure. Consider your budget, emergency savings, and income stability before borrowing.
Make your next financial decision with confidence.
Understanding your options is a great first step. Review the basics, weigh the risks, and compare financing terms before committing.