Equity vs borrowable equity
Your home equity is simply your home's value minus what you owe: a $450,000 home with a $260,000 mortgage means $190,000 of equity. But lenders won't let you borrow all of it. They cap your combined borrowing at a loan-to-value (LTV) limit — often 80–90% of the home's value. Borrowable equity is that ceiling minus your existing mortgage, which is usually less than your raw equity.
The LTV math
At an 85% LTV limit on a $450,000 home, total allowed debt is $382,500. Subtract the $260,000 mortgage and about $122,500 is available through a home equity loan or line of credit (HELOC) — not the full $190,000 of equity. The lower the LTV limit (the more conservative the lender), the less you can tap. Lenders keep this cushion so they're protected if home prices fall.
Home equity loan vs HELOC
- Home equity loan: a lump sum at a fixed rate, repaid over a set term — predictable, good for one-time costs.
- HELOC: a revolving credit line you draw from as needed, usually variable-rate — flexible, but payments and rates can rise.
Borrow against your home carefully
Because these loans are secured by your house, the rates are lower than credit cards — but the stakes are far higher: default can mean foreclosure. Sensible uses include value-adding home improvements or consolidating higher-rate debt at a lower secured rate. Risky uses include funding lifestyle spending or depreciating purchases. You're converting hard-won equity back into debt, so the reason had better be worth putting your home on the line.