Home Equity Loan Calculator
Amortization schedule
| Year | Interest | Principal | Ending Balance |
|---|---|---|---|
| 1 | $11,804.97 | $5,396.77 | $144,603.23 |
| 2 | $11,357.04 | $5,844.70 | $138,758.53 |
| 3 | $10,871.93 | $6,329.81 | $132,428.72 |
| 4 | $10,346.56 | $6,855.18 | $125,573.54 |
| 5 | $9,777.58 | $7,424.15 | $118,149.39 |
| 6 | $9,161.38 | $8,040.36 | $110,109.03 |
| 7 | $8,494.04 | $8,707.70 | $101,401.33 |
| 8 | $7,771.30 | $9,430.44 | $91,970.90 |
| 9 | $6,988.58 | $10,213.16 | $81,757.74 |
| 10 | $6,140.89 | $11,060.84 | $70,696.90 |
| 11 | $5,222.85 | $11,978.89 | $58,718.01 |
| 12 | $4,228.61 | $12,973.13 | $45,744.88 |
| 13 | $3,151.84 | $14,049.89 | $31,694.98 |
| 14 | $1,985.71 | $15,216.03 | $16,478.95 |
| 15 | $722.79 | $16,478.95 | $0.00 |
The loan amount you can borrow
Use the calculator below to estimate the maximum home equity loan amount you may be able to borrow, based on the value of your home, your remaining mortgage balance, and the loan-to-value (LTV) ratio acceptable by the lender.
The first calculator above is designed to compute the monthly payment and costs of a home equity loan. The second calculator estimates how much a borrower may qualify for based on the home's value, the outstanding mortgage balance, and the loan-to-value (LTV) ratio acceptable to lenders. Both calculators are primarily intended for use by U.S. residents.
What is a home equity loan?
A home equity loan (also called a second mortgage) is a one-time installment loan that lets you borrow using your home as collateral. The borrower receives a lump sum upfront and repays it over a fixed term with fixed monthly payments in most cases. Because the loan is backed by your home, its interest rate is typically lower than that of many other types of debt, such as credit cards or personal loans. The interest rate and the monthly repayment on a home equity loan are normally fixed. This gives the borrower a predictable repayment schedule.
Since a home equity loan uses your home as collateral, lenders usually limit how much you can borrow based on the value of the property. Most lenders set the borrowing limit at no more than 80% of the home's value, including your existing mortgage balance. For example, if a home is valued at $500,000 and the outstanding mortgage balance is $230,000, the maximum amount you could borrow at an 80% loan-to-value ratio (LTV) would be: $500,000 × 80% - $230,000 = $170,000. Some lenders may accept different loan-to-value ratios—such as 70%, 85%, or even 90%. In addition to LTV requirements, lenders also impose absolute borrowing caps on home equity loans, typically $1 million.
Besides house value, lenders also have other limitations on qualifications, such as the borrower's credit history. In the U.S., applicants with a credit score below 630 may not qualify for a home equity loan. Also, other debts of the borrower might affect qualification. Lenders typically won't approve a loan for borrowers with a high debt-to-income ratio, such as 50% or 43%. In addition, the condition of the house, existing liens on the house, insurance, and many other factors might affect qualifications.
Costs associated with a home equity loan
Inevitably, loans come with costs. A home equity loan comes with two main types of costs: upfront/closing costs and ongoing costs.
The upfront/closing costs typically include origination fees, appraisal fees, document fees, title search costs, etc. The upfront costs can easily amount to thousands of dollars or 2-5% of the loan amount. They often can be paid at closing or rolled into the loan. Many lenders offer no-closing-cost home equity loans. The trade-off is that no-closing-cost home equity loans typically have higher interest rates and limitations/penalties on early payoff.
The ongoing costs mostly refer to interest and possible fees over time. The fixed monthly payments of a home equity loan include both principal repayment and interest payment. At the beginning, the interest payment portion is larger. This interest portion gradually decreases as the principal balance (amount owed) is paid down over time. While not common, some lenders may charge recurring fees or require insurance, especially for borrowers at high loan-to-value ratios.
The various upfront costs and interest rates of different lenders make it very hard to compare loans. Our calculator above has the option of including the upfront costs in the calculation. The results can give a more comprehensive view of the loans. The Annual Percentage Rate (APR) in the calculation result is the annualized cost of borrowing money, including both the interest and the closing costs. It is a more accurate number to compare different loans, considering both the interest rate and closing costs.
Usage and alternatives to home equity loans
While taking on a loan adds a financial burden, people often need funds for various financial situations. A home equity loan allows borrowers to access a lump sum for a planned major expense, especially when they prefer a fixed interest rate and predictable monthly payments. Although individual needs vary, common uses of home equity loans include:
- Major home improvements and repairs: such as remodels, major fixes, roof replacement. Major home maintenance or upgrades help maintain or increase the home's value.
- Debt consolidation: such as paying off high-interest credit card balances or other debts. Home equity loans typically have lower interest rates compared with credit card balances and many other debts. Consolidating these debts with a home equity loan can often lower interest costs and simplify payments.
- Education costs: such as paying tuition or related expenses, or paying for professional training. It's worth comparing a home equity loan to student loan options.
- Major bills/events: such as paying for medical expenses, funding a new business, paying for a wedding, or paying for large planned purchases.
People choose to borrow home equity loans mainly because they have relatively low interest rates and low borrowing costs since they are backed by your home. However, there are other options available when you need funds and can also be backed by your home to get relatively low interest rates:
- Cash-out refinance: Cash-out refinance replaces your primary mortgage with a loan larger than your existing balance. You can take out some cash for your needs after closing. This option is good when the market interest rate is lower than your existing mortgage interest rate. Also, the refinanced mortgage loan interest qualifies for itemized income tax deduction, while the interest of a home equity loan does not always qualify.
- Home equity line of credit (HELOC): A HELOC has a draw period. You can take out money as you need during this period. Therefore, it has flexibility for paying ongoing costs, such as college tuition payments or home remodeling. It helps you borrow the amount needed—neither overborrowing nor underborrowing. But a HELOC normally has a variable interest rate, which creates financial uncertainty during repayment. Please use our HELOC calculator to make comparisons with a home equity loan.
Overall, a home equity loan is a relatively low-cost loan option for those who need it. However, like any loan, it is a financial burden to the borrower with hefty costs and should be used carefully—for a clear need, with affordable payments, and with full awareness of the costs. It can put your homeownership in danger if not used properly.