Home Equity Loan Calculator
Estimate how much cash you can borrow against your home's value.
How Much Equity Can I Borrow From My Home?
A home equity loan, often referred to as a "second mortgage," allows homeowners to borrow a lump sum of money using their property as collateral. Understanding how much you can access is critical for planning home renovations, debt consolidation, or major life expenses.
How the Home Equity Calculation Works
Lenders do not typically allow you to borrow 100% of your home's value. Instead, they use a metric called the Loan-to-Value (LTV) ratio. Most lenders cap the combined LTV (CLTV) at 80% to 85% of your home's current appraised market value.
The Formula for Borrowing Power
To determine your available cash, the calculation follows these steps:
- Determine Market Value: The current price your home would sell for.
- Apply LTV Limit: Multiply the market value by the lender's LTV limit (e.g., 0.80 for 80%).
- Subtract Existing Debt: Deduct your current mortgage balance and any other existing liens from that number.
Example Calculation
Imagine your home is worth $500,000 and you owe $300,000 on your primary mortgage. If your lender allows an 85% LTV:
- $500,000 x 0.85 = $425,000 (Maximum total debt allowed)
- $425,000 – $300,000 = $125,000 (Maximum home equity loan amount)
Factors That Influence Your Loan Amount
While the calculator provides a mathematical estimate, lenders look at several other factors during the application process:
- Credit Score: Higher scores often unlock higher LTV limits (up to 90% in some cases) and lower interest rates.
- Debt-to-Income (DTI) Ratio: Lenders ensure your monthly income can support the new loan payment alongside your existing debts.
- Appraisal: A professional appraisal will be required to verify the actual market value of the property.
- Income Stability: Proof of consistent employment and income is mandatory for most equity products.
Difference Between Home Equity Loan and HELOC
A Home Equity Loan provides a one-time lump sum with a fixed interest rate. A Home Equity Line of Credit (HELOC) works like a credit card, where you have a revolving balance and variable interest rates based on what you actually spend. Both use the same equity calculation to determine your credit limit.