Your mortgage balance exceeds your home value. You likely have no available equity.
";
return;
}
// Calculate maximum borrowable amount based on LTV
var maxLoanAmount = homeVal * (ltv / 100);
// Calculate available equity
var availableEquity = maxLoanAmount – currentBal;
// Ensure equity isn't negative for display purposes
if (availableEquity < 0) {
availableEquity = 0;
}
// Format currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 0,
maximumFractionDigits: 0,
});
resultDiv.innerHTML = "Based on a " + ltv + "% LTV limit, your estimated available borrowing power is:" + formatter.format(availableEquity) + "";
}
Understanding Home Equity Loans and LTV
A Home Equity Loan (sometimes called a second mortgage) allows homeowners to borrow against the equity they have built up in their property. Equity is simply the difference between what your home is currently worth and what you still owe on your primary mortgage.
Lenders use these loans because your house secures the debt. However, lenders will not let you borrow 100% of your home's value. They use a metric called the Loan-to-Value (LTV) ratio to determine risk.
How the Calculation Works
To figure out how much cash you can access, lenders first determine the maximum total debt they are willing to allow on the property. This is calculated by multiplying your home's appraised value by their maximum LTV percentage (typically 80% to 85% for home equity loans, though some go higher depending on creditworthiness).
Once the maximum loan amount is determined, your existing mortgage balance is subtracted from that total. The remaining figure is the estimated amount of equity available for you to borrow.
A Realistic Example
Let's look at an example of how this works in practice using typical market numbers:
Current Home Value: $500,000
Current Mortgage Balance: $300,000
Lender Max LTV: 80%
First, calculate the maximum total loan amount the lender allows:
$500,000 (Value) x 0.80 (LTV) = $400,000 (Max total debt allowed)
In this scenario, even though you have $200,000 in total raw equity ($500k – $300k), based on an 80% LTV requirement, you only have $100,000 available to borrow via a Home Equity Loan or HELOC.
Note: This calculator provides an estimate. Actual borrowing power depends on a professional appraisal, your credit score, debt-to-income ratio, and specific lender guidelines.