Question 1

What is home equity?

Accepted Answer

Home equity is the portion of your home's value you own outright — the current market value minus the remaining mortgage balance. It grows as your home appreciates and as you pay down principal.

Question 2

How do I calculate my equity?

Accepted Answer

Home equity = Current home value − Remaining mortgage balance. If your home is worth $400,000 and you owe $280,000, your equity is $120,000, or 30%.

Question 3

What is LTV (Loan-to-Value) ratio?

Accepted Answer

LTV is your remaining loan balance divided by the home's current value. Lenders use it to assess risk. An LTV above 80% usually requires PMI; below 80% can qualify for better rates.

Question 4

Can I borrow against my home equity?

Accepted Answer

Yes. HELOCs and home equity loans let you borrow against built-up equity, often at lower rates than personal loans. Most lenders require at least 20% equity remaining after the loan.

Question 5

How does appreciation build equity?

Accepted Answer

When your home's market value rises above the original purchase price, the difference becomes equity even if you haven't paid down your mortgage. This is separate from principal paydown equity.

Question 6

What is a good LTV ratio?

Accepted Answer

Below 80% LTV is generally considered good — you won't need PMI on a conventional loan. Below 60% gives access to the best rates and easiest HELOC approvals.

Question 7

Does home equity count as net worth?

Accepted Answer

Yes. Home equity is a major asset for most homeowners and counts toward net worth (assets minus liabilities). However, it's illiquid — you can't spend it without selling or borrowing.

Question 8

When does PMI drop off?

Accepted Answer

On conventional loans, you can request PMI cancellation once your LTV reaches 80%. Lenders must automatically cancel it at 78% LTV based on the original amortization schedule.

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