Home equity is the portion of your home that you actually own — your home’s value minus what you owe. Understanding your equity position is essential for refinancing decisions, HELOC applications, and tracking your net worth.
How to calculate your equity
The formula is simple:
Home Equity = Current Home Value – Outstanding Mortgage Balance
| Component | How to Determine It |
|---|---|
| Current home value | Recent comparable sales, online estimates (HouseSigma, Zolo), or a professional appraisal ($300–$500) |
| Outstanding mortgage balance | Check your mortgage statement, online banking, or call your lender |
Equity calculation examples
| Home Value | Mortgage Balance | Equity | Equity % (LTV Inverse) |
|---|---|---|---|
| $500,000 | $400,000 | $100,000 | 20% equity (80% LTV) |
| $600,000 | $350,000 | $250,000 | 42% equity (58% LTV) |
| $700,000 | $450,000 | $250,000 | 36% equity (64% LTV) |
| $800,000 | $500,000 | $300,000 | 38% equity (63% LTV) |
| $500,000 | $475,000 | $25,000 | 5% equity (95% LTV) |
How equity grows over time
Your equity increases from two sources simultaneously:
Source 1: Mortgage principal paydown
Every mortgage payment includes both interest and principal. The principal portion reduces your mortgage balance and directly increases your equity.
Example: $450,000 mortgage at 5.00%, 25-year amortization
| Year | Monthly Payment | Annual Interest | Annual Principal Paid | Remaining Balance | Cumulative Equity from Paydown |
|---|---|---|---|---|---|
| 1 | $2,618 | $21,967 | $9,449 | $440,551 | $9,449 |
| 2 | $2,618 | $21,484 | $9,932 | $430,619 | $19,381 |
| 3 | $2,618 | $20,980 | $10,436 | $420,183 | $29,817 |
| 5 | $2,618 | $19,907 | $11,509 | $397,723 | $52,277 |
| 10 | $2,618 | $16,632 | $14,784 | $336,024 | $113,976 |
| 15 | $2,618 | $12,273 | $19,143 | $254,049 | $195,951 |
| 20 | $2,618 | $6,489 | $24,927 | $147,051 | $302,949 |
| 25 | $2,618 | $129 | $31,287 | $0 | $450,000 |
Key insight: In the early years, most of your payment goes to interest and only a small portion builds equity. As time passes, more of each payment goes to principal. By year 15, you are paying down the mortgage about twice as fast as in year 1.
Source 2: Home appreciation
When your home increases in value, your equity grows even though you did nothing — this is called “passive equity.”
Example: $600,000 home appreciating at different rates
| Year | 2% Growth | 3% Growth | 5% Growth | 7% Growth |
|---|---|---|---|---|
| 1 | $612,000 | $618,000 | $630,000 | $642,000 |
| 3 | $636,724 | $655,636 | $694,575 | $735,030 |
| 5 | $662,432 | $695,564 | $765,769 | $841,532 |
| 10 | $731,393 | $806,352 | $977,337 | $1,180,292 |
| 15 | $807,727 | $935,068 | $1,247,854 | $1,658,677 |
| 20 | $891,156 | $1,083,667 | $1,592,865 | $2,330,005 |
Combined equity growth
$600,000 home, $450,000 mortgage at 5%, 3% annual appreciation:
| Year | Home Value | Mortgage Balance | Total Equity | Equity Gain (Year) |
|---|---|---|---|---|
| Start | $600,000 | $450,000 | $150,000 | — |
| 1 | $618,000 | $440,551 | $177,449 | +$27,449 |
| 2 | $636,540 | $430,619 | $205,921 | +$28,472 |
| 3 | $655,636 | $420,183 | $235,453 | +$29,532 |
| 5 | $695,564 | $397,723 | $297,841 | +$31,194/yr avg |
| 10 | $806,352 | $336,024 | $470,328 | +$34,497/yr avg |
| 15 | $935,068 | $254,049 | $681,019 | +$42,138/yr avg |
After 10 years, this homeowner has built $320,328 in equity beyond their original $150,000 — roughly $32,000 per year.
How much equity can you access?
You can access your equity through refinancing or a HELOC, but lenders limit how much:
Refinance
| Rule | Details |
|---|---|
| Maximum LTV | 80% of current home value |
| Accessible equity | (Home value × 80%) – current mortgage balance |
| Use cases | Lump sum for renovations, debt consolidation, investments |
| Cost | Penalty to break existing mortgage + legal fees ($3,000–$25,000+) |
HELOC (Home Equity Line of Credit)
| Rule | Details |
|---|---|
| Maximum HELOC LTV | 65% of home value (standalone) |
| Maximum combined LTV | 80% (mortgage + HELOC together) |
| Accessible equity | (Home value × 65%) – current mortgage, or (Home value × 80%) – current mortgage |
| Use cases | Revolving credit for ongoing access — renovations, emergency fund, investments |
| Cost | Legal setup fee ($500–$1,000), annual fee ($0–$50) |
Equity access examples
| Home Value | Mortgage Balance | Max Refinance (80% LTV) | Available via Refinance | Max HELOC (65% LTV) | Available via HELOC |
|---|---|---|---|---|---|
| $600,000 | $400,000 | $480,000 | $80,000 | $390,000 | $0 (mortgage exceeds 65%) |
| $600,000 | $350,000 | $480,000 | $130,000 | $390,000 | $40,000 |
| $700,000 | $400,000 | $560,000 | $160,000 | $455,000 | $55,000 |
| $800,000 | $450,000 | $640,000 | $190,000 | $520,000 | $70,000 |
| $500,000 | $450,000 | $400,000 | $0 (underwater at 80%) | $325,000 | $0 |
Ways to build equity faster
| Strategy | How It Works | Impact |
|---|---|---|
| Increase payment frequency | Switch from monthly to bi-weekly accelerated | Saves $15,000–$30,000+ interest over 25 years, adds extra equity |
| Make annual lump-sum payments | Use prepayment privileges (10–20% per year) | $10,000 lump sum in year 1 saves ~$14,000 in future interest |
| Increase your regular payment | Use payment increase privilege (10–20%) | Even $200/month extra builds significant equity faster |
| Renovate strategically | Kitchen, bathroom, and curb appeal improvements | $1.20–$1.80 return per $1 spent on high-impact renovations |
| Choose a shorter amortization | 20-year instead of 25-year | More goes to principal each month (higher payments but faster equity) |
| Avoid extending amortization at renewal | Keep the remaining amortization on track | Prevents starting over and paying more interest |
Lump-sum payment impact
$10,000 extra payment made at different points in a $450,000 mortgage at 5%:
| When Applied | Interest Saved | Amortization Reduction |
|---|---|---|
| Year 1 | $14,800 | 7 months earlier payoff |
| Year 5 | $11,200 | 6 months earlier |
| Year 10 | $7,400 | 4 months earlier |
| Year 15 | $4,100 | 3 months earlier |
The earlier you make extra payments, the more interest you save due to compounding.
Equity and your net worth
Home equity is typically the largest component of a Canadian household’s net worth:
| Net Worth Component | Typical % for Homeowners |
|---|---|
| Home equity | 50–70% |
| Retirement savings (RRSP, pension) | 15–25% |
| TFSA and other investments | 5–15% |
| Other assets (vehicles, etc.) | 5–10% |
Important: While home equity builds wealth, it is illiquid — you cannot easily spend it without refinancing, getting a HELOC, or selling. Ensure you are also building liquid savings (TFSA, emergency fund) alongside your home equity.