Home Equity Loan Calculator

A home equity loan lets you borrow a lump sum against the equity in your home. Equity is the difference between your home's market value and what you still owe on your mortgage. If your home is worth $500,000 and your mortgage balance is $280,000, you have $220,000 in equity. The loan is structured as a second mortgage with a fixed interest rate and fixed monthly payments over a set term, typically 10 to 30 years. You receive the full loan amount at closing and begin making payments immediately. The fixed rate means your payment stays the same for the entire term, making budgeting straightforward. Because the loan is secured by your home, interest rates are significantly lower than unsecured options like personal loans or credit cards. A home equity loan at 8% costs less than half the interest of a typical credit card at 22%. The trade-off is that your home serves as collateral. If you fail to make payments, the lender can foreclose, even if you are current on your first mortgage.

The amount you can borrow depends on your combined loan-to-value (CLTV) ratio and the lender's maximum threshold. CLTV is calculated by adding your current mortgage balance to the new home equity loan and dividing by the home's appraised value. Most banks and mortgage lenders cap CLTV at 80-85%. Using the example of a $500,000 home with a $280,000 mortgage: at 80% CLTV, the maximum total debt is $400,000, so you could borrow up to $120,000. At 85%, the maximum is $425,000, allowing up to $145,000. Credit unions often allow higher CLTVs, sometimes up to 90% or 100%. These higher-CLTV loans carry higher interest rates to compensate for the added risk. Getting approved at any CLTV level also requires meeting income and credit requirements. A lender might allow 90% CLTV for a borrower with a 760 credit score and stable employment but cap the same borrower at 80% if their score is 680. Keep in mind that borrowing your maximum available equity leaves no cushion. If home values dip even slightly, you could end up owing more than the home is worth.

Several alternatives to a home equity loan exist, each with different trade-offs. A HELOC provides flexible, revolving access to equity at a variable rate. It suits ongoing expenses like phased renovations. A home equity loan suits one-time needs where you want a fixed payment. A cash-out refinance replaces your first mortgage entirely with a larger loan at current rates. This makes sense when current rates are close to or below your existing mortgage rate. If your first mortgage is at 3.5%, a cash-out refinance at 6.75% would increase your mortgage cost substantially. A home equity loan at 8% on just the additional amount is cheaper overall because it leaves the low-rate first mortgage untouched. Personal loans require no collateral and close quickly (sometimes within 24 hours), but rates are much higher, typically 10-24%. For amounts under $15,000-$20,000, the simplicity and speed of a personal loan may outweigh the interest cost difference. For larger amounts, the rate savings of a home equity loan add up fast. On a $60,000 balance, the difference between 8% and 15% is roughly $350 per month.

The most significant risk of a home equity loan is putting your home on the line for debt that might otherwise be unsecured. Consolidating $50,000 in credit card debt into a home equity loan saves on interest, but it converts unsecured debt into secured debt. If financial trouble hits and you cannot pay, the credit card company can sue you and damage your credit. The home equity lender can foreclose. Another risk is over-borrowing. Tapping equity to fund lifestyle expenses, vacations, or non-essential purchases depletes the financial cushion your equity provides. If the housing market dips, you could end up underwater, owing more than the home is worth across both loans combined. Interest rate risk exists even on fixed-rate home equity loans in an indirect way. If rates drop significantly after you close, you are locked into the higher rate and would need to refinance (with associated closing costs) to get a better deal. Unlike a HELOC, you cannot simply benefit from falling rates. Finally, consider the total cost. A $60,000 home equity loan at 8% over 15 years costs about $43,200 in interest, bringing the total repayment to $103,200. Choosing a shorter term (10 years) reduces total interest to about $27,300 but increases the monthly payment from $573 to $728.

Applying for a home equity loan is simpler than a first mortgage but involves similar steps. You will need to provide proof of income (pay stubs, W-2s, or tax returns for self-employed borrowers), a current mortgage statement, homeowners insurance documentation, and consent for a credit check. The lender will order an appraisal to determine your home's current market value. Full appraisals cost $350-$600 and involve an in-person inspection. Some lenders accept a desktop appraisal or automated valuation model (AVM) for lower loan amounts or lower CLTV ratios, which is faster and cheaper. A title search confirms there are no liens or claims against the property beyond your known mortgage. Title insurance protects the lender against undiscovered issues. These fees add $200-$500 to closing costs. Closing typically happens 2-4 weeks after application. You sign the loan documents, and funds are disbursed (often the next business day due to the federal right of rescission, which gives you 3 business days to cancel the loan after signing). Unlike a purchase mortgage, there is no transfer of property. You are simply adding a new lien to your existing home.