Home Equity Loan Calculator
Estimate how much cash you can borrow against your home's value.
Understanding Home Equity Loans
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. The amount you can borrow is primarily determined by the difference between your home's current market value and the remaining balance on your primary mortgage.
How This Calculator Works
Lenders rarely let you borrow 100% of your home's value. Most financial institutions set a Combined Loan-to-Value (CLTV) limit, typically between 80% and 85%. This calculator uses the following formula:
Borrowing Power = (Home Value × LTV Limit) – Current Mortgage Balance
Important Factors to Consider
- Credit Score: Higher scores often qualify for higher LTV limits (up to 90% in some cases) and lower interest rates.
- Appraisal: Your "Estimated Home Value" is a guess until a professional appraiser verifies the market value.
- Debt-to-Income (DTI) Ratio: Lenders will check if your monthly income can support the new loan payments alongside your existing debts.
Example Calculation
Suppose your home is worth $500,000 and you owe $300,000 on your mortgage. If a lender allows an 80% LTV:
- Total debt allowed: $500,000 × 0.80 = $400,000
- Borrowing Power: $400,000 – $300,000 = $100,000
Difference Between a Home Equity Loan and a HELOC
While a home equity loan provides a single lump sum with a fixed interest rate, a Home Equity Line of Credit (HELOC) works more like a credit card. You are approved for a maximum amount and can draw from it as needed, usually with a variable interest rate. Both products use your home as collateral, meaning default could lead to foreclosure.