How home equity works
Home equity at purchase is price minus the loan, which is the down payment. On a $400,000 home with $20,000 down, the loan is $380,000, LTV is 95 percent, and starting equity is 5 percent of the price.
Total PMI until 80 percent LTV
$23,560.00
$190.00 a month for 124 months, until the balance falls to 80 percent of the original price.
- Loan
- $380,000.00
- Starting loan-to-value
- 95.0%
- Scheduled principal and interest
- $2,401.86
- Monthly PMI
- $190.00
- Months of PMI
- 124
- Total PMI
- $23,560.00
PMI typically applies when this is under 20 percent of the price.
Charged on the original loan amount until the balance falls to 80 percent of the original price.
On this page
Next on Buying a home
Discount pointsIn short
- Equity at closing is price minus loan. On a $400,000 home with $20,000 down the loan is $380,000, LTV is 95 percent, and equity is $20,000, 5 percent.
- A 10 percent down payment on a $350,000 home is a $315,000 loan, 90 percent LTV, and $35,000 of equity.
- At 20 percent down on the $400,000 home the loan is $320,000, LTV is 80 percent, equity is $80,000, and months of PMI is 0.
- Later equity is current value minus remaining balance. This page's PMI clock uses original price, so a rising market is not, by itself, more equity in the formula.
- How loan-to-value works is the borrowed share. This page is the residual share.
What is left after the loan
Home equity at purchase is the residual claim on the house:
On a $400,000 home with $20,000 down the loan is $380,000. Starting loan-to-value is 95 percent. Equity is the other 5 percent, $20,000.
LTV and equity's share add to 100 percent of original price. One is the borrowed slice. This page is the residual slice.
The PMI calculator on this page returns starting LTV because that ratio is also the switch for private mortgage insurance. At 95 percent LTV the rider is on. Principal is the loan being subtracted. Collateral is the house.
Ten percent down is a thicker residual, not a different formula
A $350,000 home with $35,000 down is a $315,000 loan, 90 percent LTV, and $35,000 of equity. The identity did not change. The down payment did.
Monthly PMI on that sheet is $131.25 for 89 months, $11,681.25 in total, on a scheduled payment of $1,888.58. The residual is thicker than 5 percent, so the wait down to 80 percent LTV is shorter.
Twenty percent down is 80 percent LTV and no PMI
On the $400,000 home, $80,000 down is a $320,000 loan. LTV is 80 percent. Equity is $80,000. Months of PMI is 0 and total PMI is $0, because the cancellation threshold is already met on day one.
That is why 19 percent down and 20 percent down are not almost the same product. One of them still has a rider. The other has 20 percent equity and no rider.
Later equity is a different pair of numbers
After closing, equity is current value minus remaining balance. Payments build the residual by cutting the loan. A rising market builds it by lifting the value. This page's PMI clock uses original purchase price, so a rising market does not, by itself, cancel the rider in the formula.
Extra principal shortens the wait to 80 percent of original price, because the balance gets there sooner. The mortgage payoff calculator is that clock. This page assumes the scheduled payment only.
Equity is not a payment test
A larger down payment raises equity and cuts LTV. It also cuts the loan, which cuts principal and interest. Those are two consequences of one larger cheque. Debt-to-income is whether the payment fits in pay. Equity is whether the residual covers a fall in value.
How mortgages work is the lien those two tests sit on.
What this page is not doing
It is not a current-appraisal engine, not a HELOC formula, and not a claim that 20 percent down is the right cheque. The three sheets are $20,000 of equity on a $400,000 home (95 percent LTV, $190 a month of PMI for 124 months, $23,560 total), $35,000 of equity on a $350,000 home (90 percent LTV), and $80,000 of equity on the $400,000 home (80 percent LTV, $0 of PMI). This is educational material, not financial advice.
Worked examples
5 percent down on a \$400,000 home
Home $400,000, down payment $20,000, rate 6.5 percent, 30 years, PMI 0.60 percent of the original loan. What is starting equity, and what is LTV?
- Loan: , so $380,000. Equity is the $20,000 down payment, 5 percent of price.
- Starting LTV: 95 percent.
- Monthly PMI: $190 for 124 months, $23,560 in total. Scheduled payment $2,401.86.
Starting equity is $20,000, 5 percent of the $400,000 price. The loan is $380,000, LTV 95 percent. Monthly PMI is $190 for 124 months, $23,560 in total, on a $2,401.86 payment.
10 percent down on a \$350,000 home
Home $350,000, down $35,000, rate 6 percent, 30 years, PMI 0.50 percent. What is equity?
- Loan: $315,000. Equity is the $35,000 down payment, 10 percent of price. LTV 90 percent.
- Monthly PMI $131.25 for 89 months, $11,681.25 total. Scheduled payment $1,888.58.
Starting equity is $35,000. The loan is $315,000, LTV 90 percent. Monthly PMI is $131.25 for 89 months, $11,681.25 in total, on a $1,888.58 payment.
20 percent down, 80 percent LTV
Home $400,000, down $80,000, same 6.5 percent 30-year loan, PMI rate 0.60 percent. What is equity, and how many months of PMI?
- Loan: $320,000. Equity is $80,000, 20 percent of price. LTV 80 percent.
- Months of PMI is 0 and total PMI is $0.
Starting equity is $80,000. The loan is $320,000, already 80 percent LTV, so months of PMI is 0 and total PMI is $0.
Common questions
Is equity the same as the down payment later?
At closing, yes. Later, equity is current value minus remaining balance. Payments and the market both move it.
Does a rising price cancel PMI?
Not in this formula. The clock uses original purchase price. A current-value request to the servicer is a different path.
Is 20 percent down required?
It is the conventional PMI off-switch on this page, not a rule that a household must bring that cheque. This is educational material, not financial advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.