Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. As you make mortgage payments and your home appreciates in value, your equity grows. Home equity is one of the primary ways homeowners build wealth over time and is often their single largest financial asset.

The loan-to-value (LTV) ratio is the inverse of your equity percentage. An LTV of 80% means you have 20% equity. Lenders use LTV to assess risk - a lower LTV means less risk for the lender. An LTV below 80% eliminates PMI requirements and qualifies you for the best interest rates on refinancing or home equity products.

A home equity line of credit (HELOC) lets you borrow against your equity at relatively low interest rates. Most lenders allow you to borrow up to 80% of your home's value minus your existing mortgage balance. For example, if your home is worth $450,000 and you owe $260,000, you could potentially access up to $100,000 through a HELOC. This can be used for home improvements, debt consolidation, or other major expenses.