Home Equity Loan Calculator
Estimate how much you can borrow against your home's value.
Understanding Home Equity Loans
A home equity loan, often referred to as a "second mortgage," allows homeowners to borrow a lump sum of money using the equity in their home as collateral. This calculator helps you determine the maximum amount you might be eligible to borrow based on your current home value and existing mortgage balance.
How Home Equity is Calculated
Lenders typically use a metric called the Combined Loan-to-Value (CLTV) ratio. To calculate your potential loan amount, lenders usually follow this formula:
(Home Value × Max CLTV %) – Current Mortgage Balance = Potential Loan Amount
For example, if your home is worth $500,000 and the lender allows an 80% CLTV, they will allow total debt up to $400,000. If you currently owe $300,000 on your primary mortgage, you could potentially borrow up to $100,000 in home equity.
Key Factors Impacting Your Loan
- Current Market Value: Professional appraisals are usually required to confirm your home's worth.
- LTV Ratio: Most lenders cap the CLTV at 80% to 85%, though some may go higher for borrowers with exceptional credit.
- Credit Score: A higher credit score typically translates to lower interest rates and higher borrowing limits.
- Debt-to-Income (DTI): Lenders will also evaluate your ability to repay the second mortgage alongside your existing debts.
Typical Uses for Home Equity Loans
Because home equity loans often carry lower interest rates than personal loans or credit cards, they are frequently used for high-cost endeavors such as home renovations, debt consolidation, or major medical expenses. However, remember that your home serves as collateral; failure to repay can lead to foreclosure.