Home Equity Loan Calculator
Calculate your borrowing power and estimated monthly payments.
Understanding Home Equity Loans
A Home Equity Loan, often referred to as a "second mortgage," allows homeowners to borrow against the equity they have built in their property. Equity is the difference between the current market value of your home and the remaining balance on your mortgage.
How This Calculator Works
This tool performs two primary functions. First, it calculates your Combined Loan-to-Value (CLTV) ratio. Lenders typically look for a CLTV of 80% to 85% or lower. Second, it uses the standard amortization formula to estimate your monthly principal and interest payments based on your desired loan amount and interest rate.
The CLTV Formula
The Combined Loan-to-Value ratio is calculated as follows:
CLTV = ((Current Mortgage Balance + New Home Equity Loan) / Home Value) x 100
Realistic Example
Imagine your home is worth $500,000 and you owe $300,000 on your first mortgage. You want to take out a $50,000 home equity loan for renovations.
- Total Debt: $300,000 + $50,000 = $350,000
- CLTV: ($350,000 / $500,000) = 70%
- Monthly Payment: At a 7.5% interest rate over 15 years, your monthly payment would be approximately $463.50.
Key Qualification Factors
While equity is vital, lenders also consider your credit score (typically 620+ required), your Debt-to-Income (DTI) ratio, and a stable income history. Since the home serves as collateral, home equity loans often offer lower interest rates than personal loans or credit cards, but carry the risk of foreclosure if payments are not met.