What is Home Equity?

Home equity is the difference between a property's current market value and the outstanding mortgage balance — the portion of the home the owner truly owns and can convert to cash through sale, refinance, or home-equity loan.

Home equity grows two ways: paying down the mortgage principal (amortisation) and property appreciation. For most households, home equity is the single largest component of net worth.

Equity can be tapped through a cash-out refinance, a home-equity loan (HEL, lump sum) or a home-equity line of credit (HELOC, revolving). All three add a lien on the home and risk foreclosure if payments stop.

Formula

Home Equity = Current Market Value − Outstanding Mortgage Balance

Example

A homeowner whose property is now worth CHF 1.4m, with CHF 800k remaining on the mortgage, holds CHF 600k of home equity — a powerful borrowing base for renovations or investment.

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Related terms

Home Equity Line of Credit (HELOC)

A home-equity line of credit is a revolving credit facility secured by the equity in a borrower's home, allowing draws up to a limit at variable interest rates, typically with a draw period followed by a repayment period.

Loan-to-Value (LTV)

Loan-to-value is the ratio of a mortgage loan to the appraised value of the property, expressed as a percentage, used by lenders to assess the risk of the loan.

Refinance

Refinancing is the process of replacing an existing mortgage with a new one — typically to obtain a lower interest rate, change the loan term, switch between fixed and adjustable, or cash out equity.

Property Value

Property value is the estimated worth of a piece of real estate, determined by appraisal, comparable sales or income approach, and used for sale pricing, mortgage underwriting, taxation and insurance.

Frequently asked questions

How is home equity different from down payment?+

Down payment is the initial cash; home equity grows over time through amortisation and appreciation.

Can I lose home equity?+

Yes — if property values fall faster than the loan amortises, equity shrinks and can even go negative (underwater).

How is home equity calculated?+

Current market value minus the total of all liens on the property.