Home Equity Loan Calculator
Estimate how much you can borrow against your home's value.
How Does a Home Equity Loan Work?
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. Equity is the difference between what your home is worth today and what you still owe on your primary mortgage.
The Role of Loan-to-Value (LTV) Ratio
Lenders rarely let you borrow 100% of your home's value. Most banks cap your combined loan-to-value (CLTV) ratio at 80% to 85%. This means the sum of your current mortgage and your new home equity loan cannot exceed that percentage of the home's appraised value.
Calculation Example:
- Home Value: $500,000
- Max LTV (80%): $400,000
- Current Mortgage: $300,000
- Potential Loan: $100,000
Benefits of Home Equity Loans
Home equity loans typically offer lower interest rates than personal loans or credit cards because the debt is secured by your property. Common uses include home renovations, debt consolidation, or major medical expenses. Because the rate is usually fixed, your monthly payments remain predictable throughout the life of the loan.
Important Considerations
Since your home is collateral, failing to make payments could lead to foreclosure. It is essential to ensure that your household budget can accommodate the additional monthly payment calculated above. Closing costs, similar to a standard mortgage, may also apply, ranging from 2% to 5% of the loan amount.