Home Equity vs Home Value: What's the Difference?

These two terms get tossed around interchangeably, but they're not the same thing. Understanding the difference between home equity and home value is essential for making smart financial decisions—especially when you're considering a HELOC, refinancing, or selling your home.

Both numbers affect your financial options, but they measure completely different things.

Home Value Explained

Home value is what a buyer would pay for your home today. It's the market price—what your home is worth on the open market.

How Home Value Is Determined

Several factors influence your home's value:

• Comparable sales (comps): What similar homes in your area sold for recently
• Location: Neighborhood, school district, proximity to amenities
• Size and features: Square footage, bedrooms, bathrooms, upgrades
• Condition: Age of systems, quality of finishes, maintenance level
• Market conditions: Supply and demand, interest rates, economic factors

Ways to Check Home Value

You can estimate your home's value several ways:

• Online estimators: Zillow, Redfin, Realtor.com—free but can be off by 5-15%
• Professional appraisal: Most accurate ($400-$600), required for loans
• Comparative Market Analysis (CMA): Free from real estate agents, very accurate
• County assessment: Used for taxes, often lags market value

For more details, see our guide on how to check your home value.

Home Value Fluctuates

Your home's value changes constantly based on market conditions. During hot markets, values rise rapidly. During downturns, they can decline. You don't control the market—you can only influence value through improvements and maintenance.

2019-2024 example: National home values rose roughly 50% during this period. A home worth $300,000 in 2019 might be worth $450,000 in 2024. That's not because the home changed—the market changed.

Home Equity Explained

Home equity is the portion of your home that you actually own. It's your ownership stake.

The Equity Formula

Home Equity = Home Value - Mortgage Balance

Simple as that.

Example:

• Home value: $500,000
• Mortgage balance: $300,000
• Home equity: $200,000

You have $200,000 in equity—that's "your" portion of the home's value. The other $300,000 technically belongs to the bank until you pay off the loan.

How Equity Grows

Your equity increases two ways:

1. Paying down your mortgage Every mortgage payment includes principal and interest. The principal portion reduces your loan balance, increasing your equity. In the early years, most of your payment is interest. Over time, more goes to principal.

2. Home appreciation When your home value increases, your equity increases by the same amount—without you doing anything.

Example: If your $500,000 home appreciates 5% ($25,000), your equity grows from $200,000 to $225,000. Same mortgage balance, higher equity.

Equity Can Decrease

Yes, equity can go down:

• Home values decline: During market downturns, your equity shrinks even if you keep paying the mortgage
• You borrow against it: Taking a HELOC or cash-out refinance reduces equity
• Underwater mortgage: If values drop enough, you can owe more than the home is worth

Visual Comparison

Why Both Numbers Matter for HELOCs

When you apply for a HELOC, lenders look at both your home value and your equity. Here's why:

Loan-to-Value (LTV) Calculation

Lenders use LTV to determine how much you can borrow:

Current LTV = Mortgage Balance ÷ Home Value

Most lenders allow a combined LTV (including the HELOC) of 80-85%.

Example:

• Home value: $500,000
• Mortgage balance: $300,000
• Current LTV: 300,000 ÷ 500,000 = 60%
• Maximum CLTV: 80%
• Maximum total debt: $500,000 × 80% = $400,000
• Available for HELOC: $400,000 - $300,000 = $100,000

Higher Value = Higher Credit Line

If your home value is higher, you can potentially borrow more:

Scenario A: $500,000 value, $300,000 mortgage

• At 80% CLTV: $100,000 HELOC available

Scenario B: $600,000 value, $300,000 mortgage (same equity after appreciation)

• At 80% CLTV: $180,000 HELOC available

Same mortgage payment history, but appreciation increased your borrowing power by $80,000.

Equity Is Your Cushion

Lenders require you to maintain some equity—usually 15-20%—even after borrowing. This protects both you and the lender if values decline.

How to Increase Each

Increasing Home Value

Renovations: Kitchen and bathroom updates, adding square footage, finishing basements. See our guides on kitchen remodel ROI and home improvements that add value.

Curb appeal: Landscaping, exterior paint, new front door. Often the highest ROI improvements.

Maintenance: Keeping systems in good working order prevents value decline.

Market timing: You can't control the market, but selling during a hot market maximizes value.

Increasing Home Equity

Extra mortgage payments: Biweekly payments or adding to principal builds equity faster.

Let appreciation work: In rising markets, your equity grows automatically.

Don't borrow against it: Every HELOC draw or cash-out refinance reduces equity.

Home improvements: Improvements that increase value also increase equity (assuming you don't borrow to fund them).

Real-World Scenarios

Scenario 1: Can Equity Go Up While Value Goes Down?

No. If your home value drops, your equity drops by the same amount.

Example:

• Start: $500,000 value, $300,000 mortgage, $200,000 equity
• Value drops 10%: $450,000 value
• Same mortgage: $300,000
• New equity: $150,000

You lost $50,000 in equity through no action of your own.

Scenario 2: Can Value Go Up While Equity Stays the Same?

Only if you borrow against the increased value. If your home appreciates $50,000 and you take a $50,000 HELOC, your equity stays flat.

Scenario 3: Paying Down Mortgage in a Flat Market

If values don't change but you pay $20,000 toward principal:

• Value: $500,000 (unchanged)
• Old mortgage: $300,000
• New mortgage: $280,000
• New equity: $220,000

Your equity increased purely from paying down debt.

Frequently Asked Questions

How do I find my current equity?

1. Estimate your home's value (online tools, recent comps, or appraisal)
2. Check your mortgage balance (statement or servicer website)
3. Subtract: Value - Balance = Equity

For a more formal assessment, request a home equity estimate when you apply for a HELOC.

Does equity include home improvements I've made?

Only if those improvements increased your home's value. If you spent $30,000 on a kitchen remodel that increased value by $20,000, your equity increased by $20,000 (not $30,000). Improvements don't always return 100% of their cost.

Is my equity taxable?

No. Equity isn't income—it's an asset. You don't pay taxes on equity just for having it. However, when you sell, you may owe capital gains taxes on appreciation above certain limits ($250,000 single / $500,000 married).

What's "usable equity"?

Usable equity is the amount you can actually borrow against, considering lender LTV limits. If you have $200,000 in equity but the lender requires you to keep 20% equity, your usable equity is less.

Why does my Zillow estimate keep changing?

Zillow's "Zestimate" updates based on market activity, algorithm changes, and new data. It's an estimate, not an appraisal. Your actual equity depends on what your home would actually sell for. For more on this, see how accurate is Zillow's Zestimate.

The Bottom Line

Home value is what your home is worth on the market. Home equity is the portion you actually own after subtracting your mortgage.

Both matter for your financial options:

• Higher home value = more potential borrowing power
• Higher equity = lower LTV, better terms, more flexibility

When considering a HELOC, focus on building both. Pay down your mortgage to increase equity, and maintain your home to protect (or increase) value.

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