Home Equity

Home Equity is the portion of your home you actually own, calculated as the property's current market value minus everything still owed against it — the mortgage balance, any second mortgage, a line of credit registered on title, and other secured debts.

It is not a fixed figure. Equity changes as market values move and as mortgage payments reduce the balance owed. It grows when you pay down principal, when local prices rise, and when renovations add value. It shrinks when prices fall, when the home is refinanced for cash, or when a homeowner borrows against the property.

How lenders look at equity

Lenders do not track equity directly. They use the loan-to-value ratio, or LTV — the mortgage balance divided by the property's value. The federal mortgage framework, including OSFI Guideline B-20 for federally regulated lenders, relies on LTV to classify mortgages, set maximum refinance and home equity line of credit limits, and trigger mortgage default insurance on high-ratio purchases. A lower LTV generally means more equity, less lender risk, and access to better pricing.

Why equity matters to a borrower

Equity is the store of wealth a home builds, and it is also the collateral a lender can lend against. It can fund renovations, consolidate higher-interest debt, cover an emergency, or provide a down payment on a later purchase. It is not liquid: it cannot be spent without selling, refinancing, or borrowing against the property.

A proportional example helps. If the mortgage balance equals half the home's value, equity is half and LTV is 50%. If local prices fall by 10%, the mortgage balance stays the same while the home is worth less, so equity absorbs the drop and shrinks by a larger percentage than the price did. The same leverage works in reverse when values rise.

Ways to access home equity

Common routes include a home equity line of credit (HELOC), a second mortgage, or a mortgage refinance that replaces the current mortgage with a larger one and returns the difference in cash. Each carries different rates, repayment structures, and costs, and each increases the debt secured by your home. Read the guide to accessing home equity through a refinance for a comparison.

Frequently asked questions

Can home equity be negative?

Yes. If the total debt secured by the home exceeds its market value, the owner has negative equity, sometimes described as being underwater. This can follow a sharp price decline or heavy borrowing against the property. Selling in that situation may not cover the mortgage balance and selling costs, and the shortfall generally remains owed.

How much can I borrow against my home equity?

Federally regulated lenders apply a maximum loan-to-value ratio to refinances and home equity lines of credit, so the amount available depends on your home's value, the current mortgage balance, the lender, and the product. You need enough equity to cover the new borrowing plus any fees. Confirm current limits directly with your lender.

Is home equity part of net worth?

Yes. Home equity is usually the largest single component of a Canadian household's net worth, which is total assets minus total debts. It differs from liquid savings because it cannot be spent until the home is sold, refinanced, or pledged as collateral for a loan or line of credit.