Question 1

How do I calculate my home equity?

Accepted Answer

Home equity equals your current home value minus your remaining mortgage balance. If your home is worth $500,000 and you owe $320,000, your equity is $180,000 (36%). Equity increases as you pay down principal and as the home appreciates.

Question 2

How much equity can I access with a HELOC?

Accepted Answer

Most lenders allow up to 80-85% combined LTV (loan-to-value) for HELOCs. If your home is worth $500,000 and you owe $300,000 (60% LTV), you can typically access up to $100,000-$125,000 in a HELOC (up to 80-85% LTV).

Question 3

What is the difference between equity and net proceeds?

Accepted Answer

Equity is the difference between market value and mortgage balance. Net proceeds (what you actually receive when selling) is equity minus selling costs (6% agent commission, closing costs). On a $500K home with $200K equity, net proceeds after 6% selling costs are approximately $170,000.

Question 4

Does home equity affect my taxes?

Accepted Answer

Simply having equity doesn't create a tax obligation. Accessing equity via HELOC or cash-out refinance is not taxable — it's a loan, not income. Interest on HELOCs used for home improvements may be tax-deductible; interest on HELOCs used for other purposes is not.

Question 5

How fast does equity build in the early years?

Accepted Answer

In the early years of a mortgage, most of each payment is interest, so equity builds slowly through amortization. On a $400,000 loan at 6.8%, after 5 years you've paid off only about $28,000 in principal. Most early equity gains come from home appreciation rather than amortization.

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