A home equity loan is a type of loan from which you can borrow a sum of money against the equity you have built up in your home. Equity is the difference between your home's current market value and the amount you still owe on your mortgage. For example, if your home is worth $300,000 and you owe $150,000 on your mortgage, you have $150,000 in equity.
How Home Equity Loans Work
Lenders typically allow you to borrow up to a certain percentage of your home's value, known as the Loan-to-Value (LTV) ratio. This ratio is calculated by dividing the total amount of debt secured by the home (your existing mortgage plus the new home equity loan) by the home's appraised value. Common LTV limits for home equity loans are around 80% to 90%.
Key Terms to Consider:
Home Equity: The difference between your home's current market value and the outstanding balance of your mortgage.
Loan-to-Value (LTV) Ratio: The ratio of the loan amount to the appraised value of the property, expressed as a percentage. A lower LTV generally means less risk for the lender and potentially better terms for the borrower.
Interest Rate: The percentage charged by the lender for borrowing the money. Home equity loans often have fixed interest rates.
Loan Term: The length of time over which the loan must be repaid, usually expressed in years.
Monthly Payment: The fixed amount you will pay each month to cover both principal and interest over the loan term.
Using the Home Equity Loan Calculator
Our Home Equity Loan Calculator helps you estimate the maximum amount you can borrow and your potential monthly payments. By entering your home's current value, your outstanding mortgage balance, the desired LTV ratio, the interest rate, and the loan term, you can get a clear picture of what a home equity loan might look like for you. This can be invaluable for planning large expenses such as home renovations, education costs, debt consolidation, or unexpected medical bills.
Example Calculation:
Let's say your home is currently valued at $250,000, and you have an outstanding mortgage balance of $100,000. You want to aim for an LTV ratio of 80%. The lender offers an interest rate of 6.5% for a loan term of 10 years.
Maximum loan amount based on LTV: $250,000 * 0.80 = $200,000
Available equity for borrowing: $250,000 (Home Value) – $100,000 (Mortgage Balance) = $150,000
Maximum loan you can take out (limited by available equity): $150,000
Estimated monthly payment for a $150,000 loan at 6.5% for 10 years: Approximately $1,748.36
This calculator will help you determine these figures instantly.
function calculateHomeEquityLoan() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var outstandingMortgage = parseFloat(document.getElementById("outstandingMortgage").value);
var loanToValueRatio = parseFloat(document.getElementById("loanToValueRatio").value) / 100; // Convert percentage to decimal
var interestRate = parseFloat(document.getElementById("interestRate").value) / 100; // Convert percentage to decimal
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(homeValue) || isNaN(outstandingMortgage) || isNaN(loanToValueRatio) || isNaN(interestRate) || isNaN(loanTerm)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (homeValue <= 0 || outstandingMortgage < 0 || loanToValueRatio 1 || interestRate < 0 || loanTerm <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields. LTV must be between 1% and 100%.";
return;
}
var maxLoanByLTV = homeValue * loanToValueRatio;
var availableEquity = homeValue – outstandingMortgage;
var maxBorrowableAmount = Math.min(maxLoanByLTV, availableEquity);
if (maxBorrowableAmount 0) {
var numberOfPayments = loanTerm * 12;
monthlyPayment = maxBorrowableAmount * (interestRate / 12) * Math.pow(1 + interestRate / 12, numberOfPayments) / (Math.pow(1 + interestRate / 12, numberOfPayments) – 1);
} else {
// If interest rate is 0, payment is just principal spread over term
monthlyPayment = maxBorrowableAmount / (loanTerm * 12);
}
// Handle cases where maxBorrowableAmount is 0 to avoid NaN in monthlyPayment calculation if interest rate is also 0
if (isNaN(monthlyPayment)) {
monthlyPayment = 0;
}
resultDiv.innerHTML = "