Home Equity Loan Calculator
Estimate how much you can borrow against your home's value.
*This estimate does not include closing costs, taxes, or insurance.
How to Calculate Your Home Equity Loan
A home equity loan, often called a "second mortgage," allows homeowners to borrow a lump sum of money using the equity in their home as collateral. Equity is the difference between what your home is worth and what you owe on your mortgage.
The CLTV Ratio Explained
Lenders use the Combined Loan-to-Value (CLTV) ratio to determine your borrowing limit. Most lenders allow a maximum CLTV of 80% to 85%. This means the sum of your current mortgage and your new home equity loan cannot exceed 85% of the home's appraised value.
The Formula
To find your maximum borrowing power, use this simple formula:
(Home Value × Max CLTV %) – Current Mortgage Balance = Max Home Equity Loan
Example Calculation
Suppose your home is valued at $500,000 and you owe $300,000 on your primary mortgage. If your lender allows an 80% CLTV:
- Total allowable debt: $500,000 × 0.80 = $400,000
- Current debt: $300,000
- Available Loan Amount: $400,000 – $300,000 = $100,000
Benefits of a Home Equity Loan
Home equity loans offer several advantages compared to personal loans or credit cards:
- Fixed Interest Rates: Unlike HELOCs, standard home equity loans usually have fixed rates and consistent monthly payments.
- Lower Interest: Because the loan is secured by your property, rates are typically much lower than unsecured debt.
- Potential Tax Benefits: In some cases, interest may be tax-deductible if the funds are used for substantial home improvements. Consult a tax advisor for details.