Having equity in your home is a big advantage. It can boost your net worth and give you access to affordable credit, which is why building home equity matters. If you're wondering how to build equity in your home, here is how it works and the steps you can take to grow it faster. This kind of borrowing power is one of the main benefits of a second mortgage later on.
Key Points
- Home equity is the share of your home you actually own: its current market value minus what you still owe on your mortgage.
- You build equity in four main ways: paying down your mortgage, making a larger down payment, your home rising in value, and increasing its value through renovations.
- In the early years, most of your equity comes from your home appreciating, since most of your first mortgage payments go toward interest.
- Once you have enough equity, usually at least 20%, you can access it through a home equity loan, a HELOC, or refinancing.
How To Build Home Equity In Canada
There are four main ways to build equity in your home, and most homeowners use a mix of all of them.
Pay Down Your Mortgage
The simplest way to build equity is by paying down your mortgage. Every payment chips away at your principal balance, and the more principal you pay off, the more equity you build. Making extra or accelerated payments builds it even faster.
Make A Larger Down Payment
Your equity starts the day you buy. A larger down payment means more equity from day one. Put 20% down, and you start with 20% equity. Put 30% down, and you start with 30%.
A down payment of at least 20% also lets you avoid mortgage default insurance. With less than 20% down, you must pay a CMHC, Sagen, or Canada Guaranty premium, and that premium is usually added to your mortgage balance. That means you start with less equity and pay interest on the premium for years, so reaching 20% is a double win for building equity.
Let Your Home's Value Rise On Its Own
Your home also builds equity when its market value goes up on its own. This happens when your property or neighbourhood becomes more desirable and local home prices climb. Markets in provinces like British Columbia, Alberta, and Ontario have seen strong demand for this reason, though getting into those markets can be expensive.
Increase Your Home's Value With Renovations
You can also grow equity by actively adding value to the property through renovations, additions, and improvements. This is especially effective with a fixer-upper bought below market value. Not every upgrade pays off equally, though, so focus on the improvements that tend to return the most value:
- Kitchen updates: modern cabinets, countertops, and appliances.
- Bathroom refreshes: updated fixtures, fresh tile, and added storage.
- Energy-efficient upgrades: new windows, added insulation, or a high-efficiency furnace.
- Curb appeal: landscaping, fresh paint, new siding, or an upgraded front door.
- Added living space: a finished basement or an extra bedroom or bathroom.
Just as important, keep your home well maintained. A neglected home can lose value, while routine upkeep protects the equity you have already built and helps your property hold its value over time. Stay on top of roof inspections, heating and cooling servicing, plumbing and electrical checks, exterior upkeep, and pest control, so small issues do not turn into costly repairs that eat into your equity.
What Is Home Equity?
Home equity is the portion of your home that you truly own. It is an asset, just like your car or other valuable property. The more money you put toward it, and the more the home is worth, the greater your ownership stake and the more valuable that stake becomes. Put simply, equity is the difference between what your home is worth and what you still owe on it.
How Do You Calculate Home Equity?
To calculate your home equity, take the current fair market value of your home (what it would sell for today) and subtract the outstanding balance on your mortgage.
For example, if your home is worth $400,000 and you still owe $250,000 on your mortgage, you would have $150,000 in home equity ($400,000 minus $250,000 = $150,000). For a precise number, you will need to have the property appraised. You can also get a sense of your home's current value with a tool like how much is my house worth.
How Much Equity Do You Build In A Year?
A common question is how much equity you have after one year. In the beginning, the answer is usually "not much from your payments, but potentially a lot from appreciation." That is because equity grows through two engines:
- Mortgage principal paydown: Early in your mortgage, most of each payment goes toward interest, so only a small slice pays down the principal. That slice grows every year as more of your payment shifts to principal.
- Home appreciation: Canadian home prices have historically risen a few percent per year on average, and in strong markets much more. On a $400,000 home, even 3% appreciation adds about $12,000 in equity in a single year, on top of whatever principal you paid down.
Combine the two and equity can build meaningfully, though most homeowners see the biggest gains after several years, when paydown and appreciation compound together.
How To Build Home Equity Quickly
Equity builds slowly on its own, but you can speed it up. If you want to grow your ownership stake faster, focus on the levers you actually control: how much principal you pay off, and how much your home is worth. Here are the most effective ways to build equity quickly.
Ways To Build Equity Faster
- Make a larger down payment. The more you put down at purchase, the more equity you start with on day one.
- Make accelerated or extra payments. Switching to accelerated bi-weekly payments squeezes in the equivalent of one extra monthly payment a year, and lump-sum prepayments go straight to principal.
- Choose a shorter amortization. A shorter amortization period means each payment pays down more principal, so equity grows faster (though your regular payments will be higher).
- Round up your payments. Even paying a little more than required each month, if your lender allows it, chips away at the principal sooner.
- Renovate strategically. High-return upgrades like a kitchen or bathroom refresh, a finished basement, or an added bedroom can raise your home's value quickly.
- Avoid refinancing or borrowing against your equity unnecessarily. Every time you pull equity out, you reset your progress, so leave it to grow when you can.
How Long Does It Take To Build Equity?
The single fastest way to build a large amount of equity is time combined with the tactics above. In the first year, your gains may feel small, but as more of each payment shifts from interest to principal, and as your home appreciates, equity compounds. Most homeowners who stay put and pay consistently find they have built significant equity after five to seven years.
How To Get Equity Out Of Your Home
Once you have built up enough equity, you can tap into it. The two most common ways to borrow using your home equity are a home equity loan and a home equity line of credit (HELOC).
Home Equity Loans
A home equity loan lets you borrow up to 80% of your home's appraised value, minus your current mortgage balance. It is a good option if you want predictable payments and a low rate. Like a personal loan, you receive the funds as one lump sum and repay in equal payments over a set term (up to 25 years), usually at a fixed interest rate. Some lenders also offer variable rates that move with the Bank of Canada's prime rate.
Home Equity Lines Of Credit (HELOC)
A HELOC lets you access up to 65% to 80% of your home's appraised value. Up to 65% is available for a standalone HELOC, and up to 80% if you combine it with the balance on your primary mortgage. It works as a revolving credit limit, similar to a credit card: you borrow what you need, repay it, and borrow again. Rates are usually variable, and some HELOCs stay open for 20 years or more. If you are weighing the two, our home equity loan vs HELOC comparison can help.
Where Can You Access Your Home Equity?
You can access your equity through the big banks like TD and BMO, though qualifying can be tougher, since you may be assessed on minimum equity, income, debt-to-income, the stress test, and your credit score. If you do not have the income or credit score to qualify with a big bank, alternative lenders like Alpine Credits have more flexible requirements and base approval on your available equity rather than your credit score or income.
If you are not sure what your credit score is, you can check it for free through Loans Canada's Compare Hub.
How Much Equity Do You Need To Qualify?
Every equity product comes with an approval process that looks at your income, employment history, and credit, so it helps to have those in good shape before you apply. As a general guide, here is how much equity you typically need:
| Product | Equity You Typically Need |
|---|---|
| Home equity loan | At least 20% (you can borrow up to 80% of your home's value, minus your mortgage) |
| HELOC (standalone) | At least 35% (a standalone HELOC is capped at 65% of your home's value) |
| HELOC (combined with your mortgage) | At least 20% (capped at 80% of your home's value) |
| Refinancing | At least 20% (a refinance is capped at 80% of your home's value) |
How To Fund Your Home Renovations
Because renovations are one of the best ways to increase your home's value (and your equity), it helps to know how to pay for them. In Canada, you can use a personal loan or, if you already have some equity, a home equity loan. Home equity-backed loans are often easier to qualify for and tend to carry lower rates than a personal loan, which makes them a popular way to reinvest in the property and build even more equity.
Why Building Home Equity Matters
Building equity is important because of the doors it opens. You can use your equity to access affordable credit, which you can put back into your home to build even more equity. You can also use it for other big goals, like buying a second property, consolidating high-interest debt, or covering a major expense. The more equity you build, the more financial flexibility you have.
Building Equity FAQs
What is the quickest way to build equity in your home?
What builds the most equity in a home?
How much would a $100,000 home equity loan be monthly?
How do you cut 10 years off a mortgage?
What can you use your home equity for in Canada?
How much equity do I have in my home after one year?
What happens if you miss a home equity loan payment?
Are there fees involved with accessing my home equity?
What is mortgage refinancing?
Sources
- Zoocasa. (2026). Canadian home equity growth, 2020 to 2026. https://www.zoocasa.com/blog/canadian-home-equity-2020-2026/
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