Home equity is one of the most useful numbers in real estate and one of the most often miscalculated. It decides how much an owner can borrow against their home, whether a remortgage is worth doing, what a seller walks away with, and how exposed a household is if prices fall. Yet plenty of owners still anchor to what they paid rather than what the home is worth today, and advisors sometimes accept a client's rough guess instead of a real valuation. This guide sets out exactly how to calculate home equity, works through a numeric example, and shows why the whole figure stands or falls on the market value you feed into it — the part professionals are paid to get right.
Home equity is the portion of a property the owner owns free and clear — the slice that would be theirs if they sold today and cleared every debt secured on the home. Put simply, it is the current market value minus everything owed against the property. It starts life as the deposit, then grows in two ways: the mortgage balance falls as repayments chip away at the principal, and the property's value tends to rise over time. It can also shrink — if the market softens, equity is the first thing to erode, because the debt stays fixed while the value moves. That is why equity is a live figure, not a fact you record once at purchase.
The formula
The calculation is deliberately simple: Home equity = current market value − total secured debt. The discipline is in what you put into each side. On the debt side, include everything charged against the property: the first mortgage, any second charge or home-equity loan, a further advance, and any liens. On the value side, use a realistic, current market value — supported by recent comparable sales — not the price paid, not the tax or WOZ assessment, and not the number the owner hopes for. Get the value wrong and the entire equity figure is wrong by the same amount, which is why the valuation is the real work.
A worked example
Take an owner whose home would sell today for €400,000. They have an outstanding first mortgage of €250,000 and took a €20,000 home-improvement loan secured as a second charge. Total secured debt is €270,000, so their equity is €130,000 — that is €400,000 minus €270,000, not the €150,000 you would get by forgetting the second charge. As a share of value, €130,000 of €400,000 is 32.5% equity, the mirror image of a 67.5% loan-to-value position — the same relationship we unpack in our guide to the loan-to-value ratio. Now say the owner wants to release cash by remortgaging and their lender will lend up to 85% LTV. Eighty-five percent of €400,000 is €340,000; they already owe €270,000; so the maximum they could draw out is about €70,000, leaving 15% equity retained. Change the valuation to €380,000 and that headroom shrinks to €53,000 — a €20,000 swing from a €20,000 change in value. (Figures are illustrative, to show the mechanics; real limits depend on the lender's product and criteria.)
Equity and loan-to-value are the same coin
Owners think in equity — "how much of this is mine?" — while lenders think in loan-to-value, because their risk lives in the loan, not the owner's stake. The two always sum to 100% of value: 30% equity is 70% LTV, 40% equity is 60% LTV, and so on. This matters in practice because the best mortgage rates are banded by LTV. Nudging equity from 22% to 25% can move a borrower into a cheaper rate band, which is often a stronger argument for waiting or overpaying the mortgage than the raw interest saving alone. The same affordability rules that governed the original loan still apply to any new borrowing against equity — see how lenders assess that in our guide to mortgage affordability.
Why the value input is where it goes wrong
Every equity calculation is only as trustworthy as the market value on the left of the formula, and this is exactly where amateurs and professionals diverge. Anchoring to the purchase price ignores years of movement in either direction. Using a tax assessment imports a figure built for a different purpose. Relying on a free online estimate can be off by a wide margin on an unusual home. A defensible value comes from comparable sales — recent, nearby, genuinely similar properties — adjusted for the differences between them and the subject. That is the same evidence base a valuer or agent would assemble, and it is the difference between an equity figure a lender will accept and one that collapses under the first challenge.
How professionals put an accurate value behind the number
This is where the calculation becomes a professional task rather than arithmetic. A mortgage advisor sizing a remortgage, or an agent showing a seller their likely net position, needs a value they can stand behind — and needs it fast, while the client is in front of them. This is where Biedradar fits: enter an address and it returns comparable sales, a valuation range and market signals, then generates a branded property analysis report in minutes. Instead of telling a client "roughly €400,000," an advisor can show the comps and the range the estimate rests on, so the equity figure — and the borrowing or selling decision built on it — is evidenced rather than asserted. When a client questions the number, the answer is a report, not a shrug.
What the equity number lets you do next
Once equity is calculated properly, it drives real decisions. It sets the ceiling on a home-equity loan or a cash-out remortgage. It tells a seller their approximate net proceeds after the loan is cleared (before costs and taxes). It flags negative-equity risk when a highly leveraged owner faces a falling market. And it shapes strategy: an owner with strong equity has options — releasing cash, funding a renovation, or buying the next home before selling — that a thin-equity owner does not. Biedradar's role is to keep the value input honest so those decisions rest on evidence: a branded, comparable-backed valuation an advisor or agent can hand to a client and defend. The formula never changes; the professionalism is all in the value you feed it.
Frequently asked questions
What is home equity?
Home equity is the share of a property the owner actually owns outright: the current market value of the home minus everything still owed against it — the outstanding mortgage plus any second charges, home-equity loans or liens. As the loan is paid down and the property's value rises, equity grows. It is the number that matters when someone remortgages, borrows against the home, or sells.
How do you calculate home equity?
Subtract the total debt secured on the property from its current market value. If a home is worth €400,000 and the mortgage balance is €250,000, the equity is €150,000. Include every charge against the property, not just the first mortgage. The value should be a realistic market figure from comparable sales, not the original purchase price or an optimistic guess.
What is the difference between equity and loan-to-value?
They are two sides of the same figure. Loan-to-value (LTV) is the debt as a percentage of value; equity is the rest. A home at 70% LTV has 30% equity. Lenders usually speak in LTV because their risk sits in the loan; owners think in equity because that is their stake. Convert either way by subtracting from 100%.
Does home equity include the deposit you paid?
Yes — your original deposit is the first slice of equity, and it grows from there through mortgage repayments (which reduce the debt) and price appreciation (which lifts the value). But equity can also fall if the market drops, so it is not simply deposit plus payments; it is always today's value minus today's debt.
How much equity do you need to remortgage or borrow?
It depends on the lender and product, but most want to see meaningful equity retained after any new borrowing — often at least 10–20% of value, and better rates typically require 25% or more. The equity figure sets the ceiling on how much can be released, so an accurate, defensible valuation is what makes or breaks the application.
