Home Equity
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Home equity is your home's current market value minus everything still owed against it, primarily your mortgage balance plus any home equity loans or lines of credit. It represents the portion of the home you actually own outright.

Equity grows from two independent sources: principal paydown on your loan and appreciation in your home's market value. In many markets, especially early in a loan when payments are mostly interest, appreciation contributes more to equity growth than payments do.

Yes — this is called being 'underwater' or having negative equity, and it happens when your loan balance exceeds your home's current market value, typically after a price decline or a very low down payment. It doesn't affect your monthly payment, but it does prevent selling without bringing cash to closing.

Lenders generally cap total borrowing (mortgage plus new loan) at 80% to 85% of the home's value, not 100% of your equity. So if your loan-to-value limit is 80%, you can typically only access the equity above that threshold, not your full calculated equity.

Use the current estimated market value, not the original purchase price, since equity reflects what the home is worth today. Using an outdated purchase price will understate or overstate your equity depending on whether the market has risen or fallen since you bought.