A home equity loan, often referred to as a "second mortgage," allows you to borrow against the value of your home minus what you currently owe on your primary mortgage. Unlike a Home Equity Line of Credit (HELOC), a home equity loan provides a lump sum with a fixed interest rate and a set repayment schedule.
How is the Borrowing Limit Calculated?
Lenders typically use a Loan-to-Value (LTV) or Combined Loan-to-Value (CLTV) ratio to determine how much you can borrow. Most lenders limit the CLTV to 80% or 85% of your home's appraised value.
The formula used in this calculator is:
Step 1: Home Value × Max LTV Percentage = Maximum Total Debt Allowed
Step 2: Maximum Total Debt – Current Mortgage Balance = Max Home Equity Loan Amount
Example Calculation
Suppose your home is worth $500,000 and you owe $300,000 on your mortgage. If a lender allows an 80% CLTV:
80% of $500,000 is $400,000 (Total Debt Limit).
$400,000 – $300,000 = $100,000 maximum potential loan.
Factors That Influence Your Loan
While equity is the primary factor, lenders also look at:
Credit Score: Higher scores usually unlock lower interest rates and higher LTV limits.
Debt-to-Income (DTI) Ratio: Your ability to manage the new monthly payment alongside existing debts.
Appraisal: A professional appraisal will be required to confirm the actual market value of the property.
function calculateHomeEquity() {
// Get Input Values
var homeValue = parseFloat(document.getElementById('homeValue').value);
var mortgageBalance = parseFloat(document.getElementById('mortgageBalance').value);
var ltvLimit = parseFloat(document.getElementById('ltvLimit').value);
var interestRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseInt(document.getElementById('loanTerm').value);
// Validate inputs
if (isNaN(homeValue) || isNaN(mortgageBalance) || isNaN(interestRate)) {
alert("Please enter valid numeric values.");
return;
}
// 1. Calculate Total Available Equity (Home Value – Mortgage)
var rawEquity = homeValue – mortgageBalance;
// 2. Calculate Maximum Borrowing Power (Based on CLTV)
// Max Debt Allowed = Value * LTV
var maxTotalDebt = homeValue * ltvLimit;
var maxLoanAmount = maxTotalDebt – mortgageBalance;
// Handle case where mortgage is higher than LTV limit
if (maxLoanAmount 0 && monthlyRate > 0) {
monthlyPayment = (monthlyRate * maxLoanAmount) / (1 – Math.pow(1 + monthlyRate, -numberOfPayments));
} else if (maxLoanAmount > 0 && monthlyRate === 0) {
monthlyPayment = maxLoanAmount / numberOfPayments;
}
// Display Results
document.getElementById('heResults').style.display = 'block';
document.getElementById('totalEquity').innerText = formatCurrency(rawEquity);
document.getElementById('maxBorrow').innerText = formatCurrency(maxLoanAmount);
document.getElementById('monthlyPayment').innerText = formatCurrency(monthlyPayment) + "/mo";
// Scroll to results on mobile
if (window.innerWidth < 600) {
document.getElementById('heResults').scrollIntoView({ behavior: 'smooth' });
}
}
function formatCurrency(num) {
return '$' + num.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}