I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.
Use this home equity loan calculator to estimate how much you could qualify to borrow against your home’s equity.
How to Use This Home Equity Loan Calculator
This home equity calculator is easy to use—all you need are three pieces of information:
- The appraised value of your home
- How much you currently owe on your home
- Your estimated credit score
If you haven’t had your home appraised recently, you can estimate your home’s value using online tools to get a rough idea of how much you could qualify to borrow.
How Does a Home Equity Loan Work?
A home equity loan allows you to borrow money against the available equity in your home. These loans can either be closed-end loans (such as a HELOAN) or open-ended lines of credit (such as a HELOC).
For example, if your home is worth $500,000 and you still owe $250,000 on your original mortgage, as long as you have a fair credit score (typically 620 or above), you could qualify to borrow $175,000.
Understanding Home Equity Loan Payments
This home equity loan payment calculator can help you understand what goes into a home equity loan and what you might pay over time.
For a closed-end loan, the loan amount is the lump sum you could qualify to borrow against your home’s unencumbered equity.
For an open line of credit, the loan amount is the highest balance you can withdraw from the revolving loan.
The term of your loan is simply the length of time between the beginning of your loan and when you must repay it.
The interest rate of your loan determines how much the financial institution will charge you for borrowing money.
However, interest isn’t the only expense—APR includes not only interest, but also all other fees and expenses you will pay throughout your loan.
Home Equity Definitions
Learn these key terms to better understand home equity:
Home equity – Equity is the portion of your home’s value that belongs to you. For example, if you have an $800,000 home, but you still owe $200,000 on a mortgage, the remaining $600,000 of value is your home equity.
Home equity loan – A home equity loan is similar to a traditional mortgage, but the key difference is that in a home equity loan, you already own the property.
These loans allow you to access the value of your equity without needing to sell your home or refinance your original mortgage.
Home equity line of credit (HELOC) – A line of credit is a type of loan that is open-ended, similar to a personal line of credit like a credit card.
With HELOC, you can continue to draw money as needed throughout the life of the loan.
Appraised value of home – When you aren’t buying or selling your home, getting a valuation from a professional appraiser is a good way to estimate how much your home is worth.
Most financial institutions require a form of appraisal before approving a home equity loan.
Credit score – Equifax, Experian, and Transunion are the three bureaus that issue credit scores.
Consumers can access a free credit report from each of these bureaus once a year, while tools like Credit Karma can help you estimate your credit score in between.
Interest rate – Your interest rate is a percentage that the financial institution adds to the balance of your loan each year.
The larger the balance of your loan, the larger the dollar amount of your interest will be.
Loan-to-value ratio (LTV) – Financial institutions use the loan-to-value ratio to underwrite loans. Your LTV is the amount of your home equity loan divided by the total value of the property.
Similarly, combined loan-to-value (or CLTV) follows the same principle but divides the total of ALL outstanding liens by the value of the property.
Debt-to-income (DTI) – Debt-to-income (DTI) is a way of measuring how much of your income goes toward paying off debt.
For example, if you make $10,000 a month but spend $9,000 of that on debts, such as a mortgage, student loans, and credit card bills, then your DTI would be 90% because you spend 90% of your income paying existing debts.
How to Apply for a Home Equity Loan?
Each financial institution has its requirements for a home equity loan, like a HELOAN or HELOC. The best way to find out is to contact your financial institution and speak to a loan officer who can help guide you through the application process.
Here are answers to questions about home equity loans:
What’s the difference between a home equity loan and home equity line of credit?
A home equity loan, just like a traditional mortgage, is a one-time disbursement from a financial institution that you repay (with interest) over the term of the loan.
A home equity line of credit, on the other hand, is similar to a credit card in that you can draw more money over time, up to the total amount of the loan.
How do I build equity in my home?
The best way to build equity is to pay down your existing liens, but increasing the value of your property through renovations and maintenance could also help.
How much does a home equity loan cost?
Every financial institution has a different interest rate and could charge different fees for a home equity loan.
The best way to find out how much your loan will cost is to talk to a loan officer to learn more.
Are there any tax benefits of using a home equity loan?
The interest you pay may be tax deductible if you used the loan for home renovations.
Additionally, if the value of your property has increased since you bought it, a home equity loan can allow you to access that value without it being taxed as income (although you would still have the same tax obligation when you do decide to sell).
Are home equity loans a good idea?
Home equity loans can help you access the value of your home to consolidate debts, refinance an existing lien, improve your home, pay off a construction loan, or simply have the cash on hand in case you need it.
While you will pay interest and other expenses throughout the loan, being able to access the value of your home upfront can be a good idea for some borrowers.