Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Borrowing capacity calculated at a maximum combined loan-to-value ratio is a ceiling, not a recommendation, and treating it as the amount to actually borrow removes the equity cushion that protects against a market downturn. A home that loses value after being borrowed against to the maximum can leave an owner owing more than the home is worth.
Before you rely on it
What to check
Compare the maximum borrowing capacity against a more conservative amount that preserves a real equity buffer, not just against what the lender's ratio technically allows.
The common error
Where people go wrong with home equity borrowing calculator
Borrowing up to the maximum available equity simply because the capacity exists. A market decline after maximum borrowing can erase the cushion that protects against owing more than the home is worth.
Sensitivity evidence
How property value changes the potential borrowing capacity
| Property value | Potential borrowing capacity | Total home equity |
|---|---|---|
| $400,000 | $40,000 | $120,000 |
| $450,000 | $80,000 | $170,000 |
| $500,000worked example | $120,000 | $220,000 |
| $550,000 | $160,000 | $270,000 |
| $600,000 | $200,000 | $320,000 |
Every input, tested
Which input moves the potential borrowing capacity most
| Input | Tested from | To | Potential borrowing capacity at each end | Swing |
|---|---|---|---|---|
| Property value | $450,000 | $550,000 | $80,000 to $160,000 | $80,000 (67%) |
| Existing mortgage balance | $252,000 | $308,000 | $148,000 to $92,000 | $56,000 (47%) |
| Maximum combined LTV | 78.0% | 82.0% | $110,000 to $130,000 | $20,000 (17%) |
Two variables at once
Potential borrowing capacity by property value and existing mortgage balance
| Property value \ Existing mortgage balance | $224,000 | $280,000 | $336,000 |
|---|---|---|---|
| $400,000 | $96,000 | $40,000 | $0.00 |
| $450,000 | $136,000 | $80,000 | $24,000 |
| $500,000 | $176,000 | $120,000 | $64,000 |
| $550,000 | $216,000 | $160,000 | $104,000 |
| $600,000 | $256,000 | $200,000 | $144,000 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Property value | $500,000 |
| Existing mortgage balance | $280,000 |
| Maximum combined LTV | 80.0% |
| Potential borrowing capacity | $120,000 |
| Total home equity | $220,000 |
Where the inputs come from
Property value should be a recent appraisal or a conservative estimate. Existing mortgage balance includes the first mortgage and any other liens. Maximum combined LTV is the limit a lender will allow across all loans, often 80% to 90% depending on the lender and your credit. Enter the lender's figure if you have it.
When the result stops applying
Lenders also look at income, debt-to-income and credit, so equity alone does not guarantee approval. Values can be lower than expected after an appraisal. Borrowing against a home puts it at risk if payments are missed, and fees and closing costs reduce what you net.
What to compare it with
Think of equity in three layers: what you own, what a lender will let you borrow and what you should borrow. Compare the home equity loan, HELOC and cash-out refinance calculators to see which structure fits your goal. Keep some equity untouched as a buffer, because a market decline reduces it. If you want to fund a major project, a loan that pays off with the project's benefit, such as energy savings, is easier to justify than spending.
People also ask
Frequently asked questions
How is home equity calculated?
Home equity is the property's current market value minus every loan secured by it, including the first mortgage, any second mortgage and any HELOC balance. Because value changes with the market, equity can shrink even while you keep paying the loan down.
How much equity can I borrow?
Most lenders cap combined loans at 80% to 90% of value, so capacity is that share minus what you owe.
Does equity change when the market changes?
Yes. Equity is value minus debt, so a falling market shrinks it even if your balance is unchanged, and a lender can reduce or freeze an unused credit line when values drop. Rising values do the opposite and can open more borrowing room over time.