Home equity is calculated by determining your home’s fair market value, then subtracting the amount you still owe on your mortgage (and on any other loans or liens that are tied to your home). Whatever is left is your home equity. Fair market value is the price your home would sell for in an open and competitive market. You can use an online home appraisal and a competitive market analysis to estimate your own home’s value. When you apply for a home equity line of credit or home equity loan, your lender will generate their own appraisal using an independent third-party appraiser or valuation tool.

HELOCs and HELoans use the equity in your home as collateral to access larger amounts of money at lower interest rates. Many people use home equity lines of credit and home equity loans to further grow the equity in their home by completing home improvements, renovations, and additions. In other words, by using home equity products to complete work on your house that can increase its fair market value, you may effectively grow your home’s equity while you leverage it to access capital at low rates.

If you own your home outright, then its entire fair market value would count towards your equity. Fair market value is the price your home would sell for in an open and competitive market. You can use an online home appraisal and a competitive market analysis to estimate your own home’s value. When you apply for a home equity line of credit or home equity loan, your lender will generate its own appraisal.

HELOCs and HELoans are secured by your house, which allows borrowers to access larger sums of money at lower rates. A home equity loan is a bit like a second mortgage: it’s a one-time loan that you’ll start repaying immediately through fixed monthly payments. On the other hand, a home equity line of credit lets you borrow when you need to instead of all at once. Ultimately, a home equity loan is more rigidly structured while a HELOC is more flexible.

The difference between these two numbers is your home equity. You can calculate how much home equity you have in just a few seconds by using Prosper’s Home Equity Calculator.

Because you use your home as collateral for HELOCs and HELoans, you can often borrow funds at a lower interest rate than through personal loans or credit cards. This can lead to major savings and can be a great way to pay off debt.

While real estate usually increases in value over time, it is always possible that market volatility or local alterations could impact the size of your home equity.

Borrowing against your home equity could affect your credit score in a negative or a positive way, depending on whether you make timely monthly payments. But remember, checking your rate for a home equity product like a HELOC or HELoan through Prosper does not affect your credit score at all.