How to Calculate Home Equity Loan

Loan Details

Understanding Home Equity Loans

A home equity loan is a type of secured loan that allows homeowners to borrow money against the equity they have built up in their homes. Equity is the difference between your home's current market value and the amount you still owe on your mortgage. It's a popular option for consolidating debt, funding major renovations, paying for education, or covering unexpected expenses.

How Home Equity Works

Your home equity grows over time as you pay down your mortgage principal and as your home's value potentially increases. Lenders use this equity as collateral for the loan, which generally results in lower interest rates compared to unsecured loans.

Calculating Your Borrowing Power

Lenders typically have a maximum Loan-to-Value (LTV) ratio they will allow for home equity loans. The LTV ratio is calculated as:

LTV Ratio = (Outstanding Mortgage Balance + Home Equity Loan Amount) / Current Home Value

A common maximum LTV for home equity loans is 80% or 85%. This means that the total amount of debt secured by your home (your first mortgage plus the home equity loan) cannot exceed that percentage of your home's current value. Our calculator helps you estimate your available equity and the potential LTV ratio based on your inputs.

Calculating Your Estimated Monthly Payment

The monthly payment for a home equity loan is calculated using the standard loan amortization formula. Our calculator estimates this based on the requested loan amount, interest rate, and loan term:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

• M = Your total monthly mortgage payment
• P = The loan principal (the amount you borrow)
• i = Your monthly interest rate (annual rate divided by 12)
• n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)

The calculator also shows the total amount you will pay back over the life of the loan, including all principal and interest payments.

Key Considerations

• Risk: A home equity loan puts your home at risk. If you cannot make your payments, your lender could foreclose on your home.
• Closing Costs: Like your original mortgage, home equity loans often come with closing costs, which can include appraisal fees, title insurance, and origination fees.
• Interest Rates: Home equity loans often have a fixed interest rate, meaning your monthly payment stays the same for the life of the loan. Home equity lines of credit (HELOCs) typically have variable rates.
• Tax Deductibility: Interest paid on a home equity loan may be tax-deductible if the loan proceeds are used to "buy, build, or substantially improve" the home that secures the loan. Consult a tax professional for advice specific to your situation.

Use this calculator as a preliminary tool to understand your potential borrowing capacity and loan costs. Always consult with a financial advisor and lender for personalized advice and official loan terms.

function calculateEquityLoan() { var homeValue = parseFloat(document.getElementById("homeValue").value); var outstandingMortgage = parseFloat(document.getElementById("outstandingMortgage").value); var loanAmountRequested = parseFloat(document.getElementById("loanAmountRequested").value); var interestRate = parseFloat(document.getElementById("interestRate").value); var loanTerm = parseFloat(document.getElementById("loanTerm").value); var estimatedEquity = 0; var ltvRatio = 0; var monthlyPayment = 0; var totalPaid = 0; if (!isNaN(homeValue) && homeValue > 0 && !isNaN(outstandingMortgage) && outstandingMortgage >= 0 && !isNaN(loanAmountRequested) && loanAmountRequested > 0 && !isNaN(interestRate) && interestRate >= 0 && !isNaN(loanTerm) && loanTerm > 0) { // Calculate Estimated Equity estimatedEquity = homeValue - outstandingMortgage; if (estimatedEquity 0) { ltvRatio = (totalDebt / homeValue) * 100; } // Calculate Monthly Payment (Amortization Formula) if (interestRate > 0) { var monthlyInterestRate = (interestRate / 100) / 12; var numberOfPayments = loanTerm * 12; monthlyPayment = loanAmountRequested * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) - 1); } else { // If interest rate is 0, payment is just principal divided by number of payments monthlyPayment = loanAmountRequested / (loanTerm * 12); } // Calculate Total Paid totalPaid = monthlyPayment * (loanTerm * 12); // Format and display results document.getElementById("estimatedEquity").innerText = formatCurrency(estimatedEquity); document.getElementById("ltvRatio").innerText = ltvRatio.toFixed(2) + "%"; document.getElementById("monthlyPayment").innerText = formatCurrency(monthlyPayment); document.getElementById("totalPaid").innerText = formatCurrency(totalPaid); } else { // Clear results if inputs are invalid document.getElementById("estimatedEquity").innerText = "$0.00"; document.getElementById("ltvRatio").innerText = "0.00%"; document.getElementById("monthlyPayment").innerText = "$0.00"; document.getElementById("totalPaid").innerText = "$0.00"; } } function formatCurrency(amount) { return "$" + amount.toFixed(2).replace(/(\d)(?=(\d{3})+(?!\d))/g, "$1,"); } // Initial calculation on load if values are pre-filled (optional) document.addEventListener('DOMContentLoaded', function() { calculateEquityLoan(); });