Home Equity Loan Calculator
Estimate your monthly payments and available borrowing power.
Understanding Home Equity Loans
A home equity loan, often referred to as a "second mortgage," allows homeowners to borrow against the value of their property. Unlike a Home Equity Line of Credit (HELOC), a home equity loan provides a lump sum of cash upfront with a fixed interest rate and a set repayment schedule.
How This Calculator Works
Our Home Equity Loan Calculator uses several key metrics to help you plan your finances:
- CLTV (Combined Loan-to-Value): This is the total of your existing mortgage plus your new home equity loan, divided by your home's value. Most lenders prefer a CLTV of 80% or lower.
- Amortization: The monthly payment is calculated using standard amortization math, ensuring the loan is paid off exactly at the end of the term.
- Available Equity: This shows the maximum amount you could potentially borrow based on your lender's "Max LTV" requirements.
Example Calculation
Imagine your home is worth $400,000 and you owe $250,000 on your first mortgage. If you want a $50,000 home equity loan at 7.5% interest for 15 years:
- Total Debt: $250,000 + $50,000 = $300,000.
- CLTV: $300,000 / $400,000 = 75%. (This is typically acceptable).
- Monthly Payment: Your fixed monthly payment would be approximately $463.50.
- Total Interest: Over 15 years, you would pay approximately $33,431 in interest.
Is a Home Equity Loan Right for You?
These loans are ideal for large, one-time expenses such as home renovations, debt consolidation, or major medical bills. Because the loan is secured by your home, interest rates are typically lower than personal loans or credit cards. However, remember that your home serves as collateral; failure to make payments could result in foreclosure.
Frequently Asked Questions
Most traditional lenders allow up to 80% to 85% CLTV. Some credit unions or specialized lenders may go higher, but often at the cost of higher interest rates.
According to current IRS rules, interest on home equity loans is generally only deductible if the funds are used to "buy, build, or substantially improve" the home that secures the loan.