Home Equity Loan Calculator
Estimate how much you can borrow against your home's value.
How a Home Equity Loan Works
A home equity loan, often referred to as a "second mortgage," allows you to borrow a lump sum of money using the equity in your home as collateral. Equity is the difference between the current market value of your property and the amount you still owe on your primary mortgage.
The 80% Rule (LTV Ratio)
While you might have a significant amount of equity, lenders rarely allow you to borrow 100% of it. Most financial institutions use a "Combined Loan-to-Value" (CLTV) ratio. Typically, they limit your total debt (existing mortgage + new home equity loan) to 80% or 85% of your home's appraised value.
Example Calculation
If your home is worth $500,000 and your lender allows an 80% LTV, your total borrowing limit is $400,000. If you currently owe $300,000 on your mortgage, the maximum home equity loan you could qualify for is $100,000 ($400,000 limit – $300,000 balance).
Key Benefits of Using Your Equity
- Lower Interest Rates: Because the loan is secured by your home, rates are typically much lower than credit cards or personal loans.
- Fixed Payments: Home equity loans usually offer fixed interest rates and consistent monthly payments.
- Tax Deductibility: In some cases, interest paid on home equity loans may be tax-deductible if the funds are used for substantial home improvements (consult a tax advisor).
Common Uses for Home Equity Loans
Homeowners frequently use these loans for major expenses such as kitchen renovations, roof replacements, consolidating high-interest debt, or funding higher education. Since your home is used as collateral, it is vital to ensure you can manage the additional monthly payments to avoid the risk of foreclosure.