function calculateHomeEquity() {
var homeValue = parseFloat(document.getElementById('homeValue').value);
var mortgageBalance = parseFloat(document.getElementById('mortgageBalance').value);
var ltvLimit = parseFloat(document.getElementById('ltvLimit').value) / 100;
var interestRate = parseFloat(document.getElementById('interestRate').value) / 100 / 12;
var loanTermMonths = parseInt(document.getElementById('loanTerm').value) * 12;
if (isNaN(homeValue) || isNaN(mortgageBalance)) {
alert("Please enter valid numeric values for Home Value and Mortgage Balance.");
return;
}
// 1. Calculate Total Equity
var totalEquity = homeValue – mortgageBalance;
// 2. Calculate Max Loan based on LTV
// Logic: (Home Value * LTV Limit) – Existing Mortgage
var maxBorrowingPower = (homeValue * ltvLimit) – mortgageBalance;
if (maxBorrowingPower 0 && interestRate > 0) {
payment = (maxBorrowingPower * interestRate * Math.pow(1 + interestRate, loanTermMonths)) / (Math.pow(1 + interestRate, loanTermMonths) – 1);
} else if (maxBorrowingPower > 0 && interestRate === 0) {
payment = maxBorrowingPower / loanTermMonths;
}
// 4. Combined LTV (CLTV) calculation for the result
var cltv = ((mortgageBalance + maxBorrowingPower) / homeValue) * 100;
// Display Results
document.getElementById('resultsArea').style.display = 'block';
document.getElementById('totalEquity').innerText = '$' + totalEquity.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0});
document.getElementById('maxLoan').innerText = '$' + maxBorrowingPower.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0});
document.getElementById('monthlyPayment').innerText = '$' + payment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cltvResult').innerText = cltv.toFixed(1) + '%';
}
Understanding Home Equity Loans
A home equity loan, often referred to as a "second mortgage," allows you to borrow against the value of your home. The amount you can borrow depends on the difference between your home's current market value and the balance remaining on your primary mortgage. This calculator helps you estimate your borrowing capacity based on standard lender guidelines.
How Is Your Borrowing Limit Calculated?
Lenders typically use a Combined Loan-to-Value (CLTV) ratio to determine your eligibility. Most lenders allow for a CLTV of 80% to 85%. The formula used in this calculator is:
Max Loan Amount = (Home Market Value × Max LTV %) – Current Mortgage Balance
Practical Example
Imagine your home is valued at $500,000 and you still owe $300,000 on your mortgage. If a lender allows an 85% CLTV:
Total allowable debt: $500,000 × 0.85 = $425,000
Minus your current mortgage: $425,000 – $300,000
Maximum Home Equity Loan: $125,000
Factors That Influence Your Loan
While equity is the primary factor, lenders will also evaluate your application based on:
Credit Score: A higher score (700+) usually unlocks lower interest rates.
Debt-to-Income (DTI) Ratio: Lenders prefer your total monthly debt payments to be under 43% of your gross income.
Appraisal: A professional appraisal will be required to confirm your home's current market value.
Common Uses for Home Equity Loans
Because home equity loans offer fixed interest rates and predictable monthly payments, they are popular for:
Home Improvements: Renovations that may increase the property value further.
Debt Consolidation: Paying off high-interest credit cards with a lower-interest loan.
Major Expenses: Funding education, medical bills, or significant life events.
Note: Your home serves as collateral for this loan. Failure to make payments could lead to foreclosure. Always consult with a financial advisor before taking on new debt.