Home Equity Loan Calculator
Your Estimates
Warning: Your requested loan exceeds the maximum allowed Combined Loan-to-Value (CLTV).
Understanding Your Home Equity Loan
A home equity loan, often referred to as a "second mortgage," allows you to borrow a lump sum of money using your home as collateral. Unlike a HELOC (Home Equity Line of Credit), which acts more like a credit card, a home equity loan provides a fixed amount of cash with a fixed interest rate and a set repayment schedule.
How the Calculation Works
Lenders primarily look at your Combined Loan-to-Value (CLTV) ratio. This is the sum of your current mortgage balance plus the new loan amount, divided by the total value of your home.
- Step 1: Determine your home's current market value.
- Step 2: Calculate the maximum borrowing limit (Value x LTV percentage).
- Step 3: Subtract your existing mortgage balance from that limit to find your available equity.
- Step 4: Calculate the monthly payment using the fixed interest rate and term.
Real-World Example
Imagine your home is worth $500,000 and you owe $300,000. If a lender allows an 80% CLTV, they will allow total debt up to $400,000 ($500,000 x 0.80). Subtracting your current $300,000 balance leaves you with a maximum home equity loan of $100,000.
If you take out $50,000 at a 7% interest rate for 15 years, your monthly payment would be roughly $449.41, and you would pay approximately $30,894 in total interest over the life of the loan.
Important Considerations
- Risk: Your home serves as collateral. Failure to make payments could result in foreclosure.
- Closing Costs: Like a primary mortgage, home equity loans often come with appraisal fees, origination fees, and closing costs ranging from 2% to 5% of the loan amount.
- Tax Deductibility: In many cases, interest on home equity loans is only tax-deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Consult a tax professional for your specific situation.