function calculateEquity() {
var homeValue = parseFloat(document.getElementById('homeValue').value);
var mortgageBalance = parseFloat(document.getElementById('mortgageBalance').value);
var ltvLimit = parseFloat(document.getElementById('ltvLimit').value) / 100;
var loanTerm = parseFloat(document.getElementById('loanTerm').value);
var annualRate = parseFloat(document.getElementById('interestRate').value) / 100;
if (isNaN(homeValue) || isNaN(mortgageBalance) || isNaN(ltvLimit) || isNaN(loanTerm) || isNaN(annualRate)) {
alert("Please enter valid numerical values.");
return;
}
// Logic: (Home Value * LTV%) – Current Balance
var totalAllowedValue = homeValue * ltvLimit;
var maxLoanAmount = totalAllowedValue – mortgageBalance;
if (maxLoanAmount <= 0) {
document.getElementById('resMaxLoan').innerHTML = "$0 (Insufficient Equity)";
document.getElementById('resMonthly').innerHTML = "$0";
document.getElementById('resInterest').innerHTML = "$0";
document.getElementById('equityResults').style.display = "block";
return;
}
// Amortization Formula: P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
var monthlyRate = annualRate / 12;
var numberOfPayments = loanTerm * 12;
var monthlyPayment = maxLoanAmount * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
var totalRepayment = monthlyPayment * numberOfPayments;
var totalInterest = totalRepayment – maxLoanAmount;
document.getElementById('resMaxLoan').innerHTML = "$" + maxLoanAmount.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resMonthly').innerHTML = "$" + monthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resInterest').innerHTML = "$" + totalInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('equityResults').style.display = "block";
}
Understanding Your Home Equity Loan Potential
A home equity loan, often referred to as a "second mortgage," allows homeowners to borrow against the value of their property. Unlike a Home Equity Line of Credit (HELOC), a home equity loan provides a lump sum of cash upfront with a fixed interest rate and a set repayment term.
How Home Equity is Calculated
Equity is the difference between what your home is worth and what you owe on your mortgage. For example, if your home is valued at $500,000 and you owe $300,000, you have $200,000 in equity. However, lenders rarely allow you to borrow 100% of that value.
The LTV (Loan-to-Value) Rule
Most lenders use a maximum Loan-to-Value (LTV) ratio, typically between 80% and 85%. This means the sum of your current mortgage and your new home equity loan cannot exceed that percentage of your home's appraised value.
Step-by-Step Calculation Example
Let's look at a realistic scenario for a homeowner wanting to consolidate debt or renovate:
Metric
Value
Home Appraisal Value
$400,000
Current Mortgage Balance
$200,000
Lender LTV Limit (80%)
$320,000
Max Loan Amount
$120,000
Pros and Cons of Home Equity Loans
Pro: Fixed Interest Rates – Your monthly payment remains predictable over the entire life of the loan.
Pro: Lower Rates – Since the loan is secured by your home, rates are usually much lower than personal loans or credit cards.
Con: Risk of Foreclosure – Your home serves as collateral. If you fail to make payments, the lender can foreclose.
Con: Closing Costs – Similar to a primary mortgage, these loans often come with appraisal fees, origination fees, and title searches.
Common Uses for Home Equity Loans
Many homeowners utilize this financial tool for high-impact expenses. Debt consolidation is a primary driver, as it replaces high-interest credit card debt (often 20%+) with a much lower fixed-rate loan. Home improvements are another popular choice, as certain renovations can further increase the property's market value, potentially creating a "double-win" for the homeowner's net worth.
Important Consideration: Credit Scores
While equity is the primary factor, lenders also scrutinize your credit score and Debt-to-Income (DTI) ratio. A credit score above 700 usually unlocks the most competitive interest rates shown in our calculator above.