How Much Equity Can I Borrow From My Home?

Kelli Pate is a full-time copy editor and freelance writer who has written for CreditCards.com, Bankrate, MoneyGeek, DailyWorth, Vox.com, Entertainment Weekly, and Mic, among other publications. When she's not busy recalculating her F.I.R.E. number or pondering her next vacation (paid for with travel rewards, obviously), she's working on house projects and listening to audiobooks, most recently Matt Haig's "The Midnight Library".

Kelli Pate

Kelli PateContributor

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Chris JenningsDeputy Editor, Loans & Mortgages

Chris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a number of outlets, including Yahoo Finance, MSN, Fox Business, and GOBankingRates.

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Chris Jennings

Chris JenningsDeputy Editor, Loans & Mortgages

Deputy Editor, Loans & Mortgages

Reviewed

Updated: Jan 27, 2023, 10:50am

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How Much Equity Can I Borrow From My Home?

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Home equity, a primary source of wealth for most U.S. households, is at its highest level in decades. Tapping your home equity can be an attractive and affordable financing option for homeowners eyeing a big renovation or looking to pay down high-interest debt.

You have several options when it comes to accessing your equity, but how much you can borrow varies depending on the lender you choose and your financial profile.

How to Calculate My Home Equity

Home equity is the difference between what your house is worth and how much you owe on your mortgage.

Calculating your home equity is as simple as subtracting your mortgage balance from your home’s current market value. For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity.

While you can get a rough estimate of your home’s worth using estimators online, the most accurate way to calculate your home equity is through a professional home appraisal. These typically cost between $300 and $500.

In addition, if you’re thinking about selling your house, your real estate agent will often provide you with a free comparative market analysis, using recent sales of similar properties in your area and an assessment of your home’s features and condition to help determine its value.

To find out exactly how much you still owe on your mortgage, take a peek at your most recent mortgage statement or contact your lender directly.

How Much Home Equity You Can Borrow

How much home equity you can borrow varies by lender, but generally speaking, you can borrow up to 80% of the available equity in your home—some lenders will even allow you to borrow as much as 90%.

The amount you ultimately qualify for also depends on factors like your creditworthiness, income, employment history and debt-to-income (DTI) ratio.

3 Ways to Borrow From Your Home Equity

You have three options for borrowing from your home equity: a home equity line of credit, a home equity loan or a cash-out refinance.

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured by the equity in your home. You can typically borrow up to 85% of your home’s equity. Instead of accessing all of your available credit up front, you can borrow from a HELOC when needed, typically over a 10-year time frame known as the draw period.

During those 10 years, you can opt to make interest-only payments on the amount of credit you’ve used. As the draw period ends and the repayment period—usually 20 years—begins, you’ll make regular payments on the amount you borrowed plus any interest, until you repay the HELOC in full.

Most HELOCs have variable interest rates, which means your monthly payment can go up or down over time. While fixed-rate HELOCs are available, they generally carry higher initial interest rates, which you’ll be stuck with if market rates drop.

Home Equity Loan

A home equity loan is similar to a HELOC in that it uses your home equity as collateral. Most lenders also let you borrow up to 85% of the equity in your home. Unlike a HELOC, though, you’ll receive funds from a home equity loan in one lump sum, like you would with a conventional mortgage.

Home equity loans also have a fixed interest rate and repayment period—usually between five and 30 years—which means your monthly payment stays the same over the life of your loan.

Cash-out Refinance

A cash-out refinance lets you access your home’s equity by paying off your existing mortgage with a higher loan, after which you get the difference in one lump sum.

For example, if your home is worth $300,000 and you owe $200,000, you have $100,000 in equity. If you want to access $40,000 of your equity, you can do a cash-out refinance, in which case you will refinance your home for the amount you still owe ($200,000) plus the amount of equity you wish to withdraw ($40,000), giving you a new mortgage of $240,000.

Many lenders require you to retain 20% equity after a cash-out refinance. If you’re left with less than 20% equity in your home, you might have to pay private mortgage insurance (PMI).

Pros and Cons to Tapping Home Equity

Accessing your home equity lets you use the money for almost any purpose, including home improvements, emergency costs, debt consolidation, college tuition and other big expenses. Doing so also offers many advantages over other types of financing. That said, it’s not without its downsides.

Pros of Tapping Home Equity

Financing secured by your home’s equity usually has a lower interest rate than personal loans and credit cards
You can generally borrow larger amounts of money than you could with unsecured credit
The interest you pay may be tax-deductible as long as you use the funds to buy, build or substantially improve your home, according to the IRS
Tapping home equity offers flexibility, including the option to borrow money as needed over time (with a HELOC) or on a one-time basis (with a home equity loan or cash-out refinance)
If you use your home equity to pay off other debts, you’ll have fewer monthly payments, helping to streamline your budget

Cons of Tapping Home Equity

You may have to pay closing costs and other fees
Interest isn’t tax-deductible if you use the funds for personal expenses, such as to pay off high-interest credit card debt
You could end up owing more than your house is worth if you borrow too much equity and home values drop
Since your home is used as collateral, you risk foreclosure if you default on your payments

Which Option Is Right For You?

Whether a HELOC, home equity loan or cash-out refinance is right for you depends on how long you plan to remain in your home and what you want to do with the money.

For instance, a home equity loan might be best if you know exactly how much you need to borrow and want the amount in one lump sum, like you would with debt consolidation. It also offers structure for those who prefer fixed monthly payments and set repayment schedules.

The same applies to cash-out refinances, especially if you can reduce your interest rate and plan to put the funds back into your home. But if you don’t expect to stay in your home until you reach your break-even point (when you’ll recover the costs of refinancing, which includes recouping the equity you cashed out), this option may not make sense.

Finally, if you’re unsure how much money you need or think you may need to access additional financing later—which might be the case with home renovations or college expenses, the costs of which can change—a HELOC may provide the flexibility you’re looking for.