Housing & property
Home equity and HELOC: Definition, Formula and Example
Home equity is property value minus debt secured on it; a HELOC is revolving credit secured by the home, while a home equity loan usually advances a lump sum.
Scope: Home-secured borrowing; examples and source terminology use the U.S. lending context.
Other names and related labels: Home equity loan; Home equity line of credit.
How it works
Equity is not automatically available cash. Lenders evaluate combined loan exposure, income, credit and other conditions. HELOCs typically have a draw phase and a repayment phase, with rates and payment requirements set by the contract. Using the home as collateral creates foreclosure risk.
Simplified equity = property value − secured debt; illustrative additional capacity = allowed combined debt − existing secured debt
An assumed CLTV ceiling is an input, not a universal lending rule or a guaranteed line of credit.
$300,000 home with $180,000 of secured debt
Assume a hypothetical lender ceiling of 80% combined LTV.
- Equity: $300,000 − $180,000 = $120,000.
- Assumed combined debt ceiling: 80% × $300,000 = $240,000.
- Illustrative extra capacity: $240,000 − $180,000 = $60,000.
Equity is $120,000, but the illustrated additional borrowing room is only $60,000.
No other liens or fees; the 80% ceiling is hypothetical and approval is not assumed.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
Equity and a credit limit are not the same
A lender may reduce or freeze a HELOC, and repayment-phase payments can rise. Our Home Equity Loan Calculator models an entered loan amount and costs; it does not determine what a lender will approve.
Explore with a calculator
- Home Equity Loan Calculator
Estimate payment and borrowing cost for an entered lump-sum loan.
- HELOC Calculator
Explore entered draw-period and repayment assumptions.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
Calculation methodology and review status · All glossary terms