Home Equity Loan Calculator

Your home equity is the difference between your home's current market value and the outstanding balance on your mortgage. For example, if your home is worth $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. Lenders typically allow you to borrow against a portion of this equity, usually up to 80% of the loan-to-value (LTV) ratio.

A home equity loan is a lump-sum loan with a fixed interest rate and fixed monthly payments over a set term. It's ideal for one-time expenses like renovations or debt consolidation. A HELOC (Home Equity Line of Credit) works more like a credit card — you can borrow against your equity as needed, with variable interest rates and flexible repayment options. HELOCs are better for ongoing or variable expenses.

Lenders use a combined loan-to-value (CLTV) ratio to determine your maximum borrowing power. The formula is: Maximum Loan = (Home Value × CLTV%) − Current Mortgage Balance. Most lenders cap CLTV at 80%, meaning you can borrow up to 80% of your home's value minus what you still owe. Some lenders may offer higher ratios (up to 90%) but typically charge higher rates.

Home equity loans offer several benefits: typically lower interest rates than credit cards or personal loans, fixed monthly payments for easier budgeting, potential tax deductibility on interest (if used for home improvements), and flexible use of funds for renovations, education, debt consolidation, or other major expenses.

The primary risk is that your home secures the loan. If you can't make payments, you could face foreclosure. Other risks include: high closing costs (2-5% of the loan amount), variable interest rate risk with HELOCs, potential for negative equity if home values decline, and temptation to over-borrow. It's important to have a solid repayment plan before tapping your equity.

During the draw period (typically 5-10 years), many HELOCs allow you to make interest-only payments, meaning you only pay the interest portion of what you've borrowed. This keeps monthly payments low but doesn't reduce your principal balance. At the end of the draw period, you'll enter the repayment phase where you must pay both principal and interest, which can result in significantly higher monthly payments.

While having good credit helps you qualify for better rates, you may still be able to get a home equity loan with less-than-perfect credit. Your credit score, combined with your home's equity position and debt-to-income ratio, will determine your eligibility and terms. However, expect higher interest rates and potentially lower loan-to-value limits if your credit is below 680.