Home Equity Loan Calculator
Calculate home equity loan payments and borrowing power. Compare home equity loans vs HELOCs, determine how much equity you can access, and estimate monthly payments.
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About This Calculator
A home equity loan allows you to borrow against the equity you've built in your home. Also known as a second mortgage, it provides a lump sum with a fixed interest rate and predictable monthly payments. Home equity loans are popular for major expenses like home improvements, debt consolidation, or large purchases.
What Is a Home Equity Loan? A home equity loan is a secured loan that uses your home as collateral. You receive the loan amount upfront and repay it over a fixed term with fixed monthly payments. Unlike a HELOC (Home Equity Line of Credit), a home equity loan provides a one-time lump sum rather than a revolving credit line.
Home Equity Loan Features:
- Fixed interest rate for the life of the loan
- Lump sum disbursement at closing
- Fixed monthly payments (principal + interest)
- Terms typically 5-30 years
- Interest may be tax deductible for home improvements
How Much Can You Borrow? Most lenders allow combined loan-to-value (CLTV) ratios up to 80-85%, meaning your first mortgage plus home equity loan cannot exceed 80-85% of your home's value. Some lenders allow up to 90% for borrowers with excellent credit.
Common Uses:
- Home renovations and improvements
- Debt consolidation
- Education expenses
- Medical bills
- Emergency funds
This calculator helps estimate home equity loan amounts and payments. For HELOC calculations, see our HELOC Calculator. For mortgage refinancing, visit our Refinance Calculator.
How to Use the Home Equity Loan Calculator
- 1Enter your current home value (use recent appraisal or estimate).
- 2Input your remaining first mortgage balance.
- 3Enter desired loan amount (or leave blank to see maximum).
- 4Input the interest rate (or use default for current rates).
- 5Select your preferred loan term.
- 6Choose maximum LTV based on your credit and lender.
- 7Select loan purpose for tax deductibility information.
- 8Enter your credit score range.
- 9Review your borrowing power and monthly payment.
- 10Compare home equity loan vs HELOC for your needs.
How Home Equity Loans Work
Understanding the mechanics of home equity borrowing.
The Basics
Equity = Home Value - Mortgage Balance
Example:
- Home value: $400,000
- Mortgage balance: $250,000
- Equity: $150,000
Borrowing Limits
Combined Loan-to-Value (CLTV): (First Mortgage + Home Equity Loan) / Home Value
| Credit Score | Typical Max CLTV |
|---|---|
| 740+ | 85-90% |
| 700-739 | 80-85% |
| 680-699 | 75-80% |
| Below 680 | 70-75% |
Example Calculation
Home value: $400,000 Mortgage: $250,000 Max CLTV: 80%
- Max combined debt: $400,000 × 80% = $320,000
- Max home equity loan: $320,000 - $250,000 = $70,000
The Loan Process
- Apply with lender (bank, credit union, online)
- Home appraisal required
- Income and credit verification
- Underwriting (2-4 weeks typical)
- Closing (sign documents, receive funds)
- Begin monthly payments
Home Equity Loan vs. HELOC
Choosing between a lump sum loan and line of credit.
Key Differences
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Disbursement | Lump sum | Draw as needed |
| Rate type | Fixed | Variable (usually) |
| Payment | Fixed P&I | Interest only (draw period) |
| Best for | One-time expense | Ongoing needs |
| Rate level | Lower initially | May start lower |
When to Choose Home Equity Loan
Better for:
- Large, one-time expenses
- Debt consolidation
- When you want payment certainty
- When rates may rise
- Disciplined repayment needed
Examples:
- Major renovation ($50,000)
- Consolidating $40,000 credit card debt
- Child's college tuition ($80,000)
When to Choose HELOC
Better for:
- Ongoing projects
- Emergency fund access
- Flexibility needed
- Lower initial payments preferred
Examples:
- Series of home improvements
- Business working capital
- Investment opportunities
- Emergency backup
Cost Comparison Example
$50,000 over 10 years:
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Initial rate | 8.0% | 8.5% (variable) |
| Monthly payment | $607 | $354 (interest only) |
| Year 5 rate | 8.0% | 9.5% (if rates rise) |
| Total interest | $22,800 | ~$28,000 (estimated) |
Interest Rates and Costs
Understanding home equity loan pricing.
Current Rate Environment (2024)
| Credit Score | Typical Rate Range |
|---|---|
| 760+ | 7.5-8.5% |
| 720-759 | 8.0-9.0% |
| 700-719 | 8.5-9.5% |
| 680-699 | 9.0-10.5% |
| 660-679 | 10.0-12.0% |
Factors Affecting Your Rate
Credit Score:
- Biggest factor in rate
- 40 points can mean 1%+ difference
Loan-to-Value:
- Lower LTV = lower rate
- 60% LTV better than 80%
Debt-to-Income:
- Lower DTI preferred
- Usually want under 43%
Loan Amount:
- Minimum loan amounts ($10K-25K typically)
- Very large loans may have rate tiers
Closing Costs
| Cost | Typical Amount |
|---|---|
| Application fee | $0-$500 |
| Appraisal | $300-$600 |
| Origination fee | 0-1% of loan |
| Title search | $100-$400 |
| Recording fees | $50-$200 |
| Total | 2-5% of loan |
Some lenders offer no-closing-cost options (higher rate).
APR vs. Interest Rate
- APR includes fees spread over loan term
- Use APR to compare total cost
- Example: 8% rate + 2% fees = ~8.5% APR (15-year)
Tax Implications
Understanding when home equity loan interest is deductible.
Current Tax Rules (Post-2017)
Deductible When:
- Funds used to "buy, build, or substantially improve" the home
- Combined mortgage debt under $750,000 ($375,000 married filing separately)
- You itemize deductions
NOT Deductible When:
- Funds used for debt consolidation
- Funds used for education, vacations, cars
- Funds used for investments
- You take standard deduction
Example Scenarios
Scenario 1: Kitchen Remodel
- Home equity loan: $50,000
- Used for: Kitchen renovation
- Interest paid: $4,000/year
- Tax deductible: YES (home improvement)
Scenario 2: Debt Consolidation
- Home equity loan: $50,000
- Used for: Pay off credit cards
- Interest paid: $4,000/year
- Tax deductible: NO (not home improvement)
Scenario 3: Mixed Use
- Home equity loan: $100,000
- $60,000 for addition, $40,000 for debt
- Deductible: $60,000 portion only
- Track funds separately
Tax Savings Example
Deductible interest: $4,000
| Tax Bracket | Tax Savings |
|---|---|
| 22% | $880 |
| 24% | $960 |
| 32% | $1,280 |
| 35% | $1,400 |
Documentation Tips
- Keep detailed records of how funds are used
- Get receipts for all home improvement expenses
- Maintain separate accounts if possible
- Consult tax professional for your situation
Qualification Requirements
What you need to qualify for a home equity loan.
Basic Requirements
| Requirement | Typical Standard |
|---|---|
| Minimum equity | 15-20% |
| Maximum CLTV | 80-85% |
| Minimum credit score | 620-680 |
| Maximum DTI | 43-50% |
| Income verification | Required |
Credit Score Impact
| Score | Likelihood | Terms |
|---|---|---|
| 760+ | Excellent | Best rates, highest LTV |
| 720-759 | Very good | Good rates and terms |
| 700-719 | Good | Moderate rates |
| 680-699 | Fair | Higher rates |
| 660-679 | Poor | Limited options, high rates |
| Below 660 | Difficult | May need alternative |
Required Documentation
Income:
- 2 years tax returns
- Recent pay stubs (30 days)
- W-2s (2 years)
- Bank statements (2-3 months)
Property:
- Current mortgage statement
- Homeowners insurance
- Property tax information
- Recent appraisal or estimate
Identity:
- Government ID
- Social Security number
Debt-to-Income Calculation
Front-End DTI (housing): (Mortgage + Equity Loan + Taxes + Insurance) / Monthly Income
Back-End DTI (all debt): (All Monthly Debt Payments) / Monthly Income
Target: Back-end under 43%
Compensating Factors
If borderline on one requirement:
- Higher down payment/equity
- Larger cash reserves
- Long employment history
- Lower loan amount requested
Risks and Considerations
Important factors before borrowing against your home.
Your Home Is at Risk
Key Point: Home equity loans use your home as collateral. Failure to make payments can result in foreclosure.
Risk Factors:
- Job loss or income reduction
- Interest rate on other debt increasing
- Property value decline
- Health emergencies
Payment Shock
Example scenario:
| Item | Monthly Cost |
|---|---|
| First mortgage | $1,800 |
| New equity loan | $500 |
| Property tax/ins | $400 |
| New total | $2,700 |
Question: Can you afford $500 more per month for 15 years?
Negative Equity Risk
If home values decline:
- Your home value: $400,000
- First mortgage: $250,000
- Equity loan: $70,000
- Combined debt: $320,000
If value drops to $300,000:
- You owe more than home is worth
- Cannot sell without bringing cash
- Refinancing becomes difficult
Opportunity Cost
Consider alternatives:
- Personal loan (no home at risk)
- 401(k) loan (borrow from yourself)
- Cash-out refinance (one payment)
- Credit cards (short-term only)
- 0% balance transfer (for debt consolidation)
Questions to Ask Yourself
- Can I definitely afford the payment?
- What if my income drops?
- Is this expense truly necessary?
- Have I explored other options?
- Am I extending debt I should be paying off?
Pro Tips
- 💡Shop multiple lenders - rates can vary significantly.
- 💡Check credit union rates - often lower than banks.
- 💡Calculate total cost including closing costs and interest.
- 💡Consider shorter terms for lower total interest paid.
- 💡Keep 20%+ equity to avoid potential PMI requirements.
- 💡Document home improvement expenses for tax deduction.
- 💡Build 6 months of payments in reserves before borrowing.
- 💡Don't borrow more than you need - your home is at risk.
- 💡Compare to cash-out refinance if your current rate is high.
- 💡Read all loan documents carefully before signing.
- 💡Understand prepayment penalties (if any) before committing.
- 💡Consider how payment fits your monthly budget long-term.
Frequently Asked Questions
Most lenders allow you to borrow up to 80-85% of your home's value minus your existing mortgage balance. For example, with a $400,000 home and $250,000 mortgage, you could borrow up to $70,000 (80% CLTV) or $90,000 (85% CLTV). Your credit score and income also affect approval amounts.
