Home Equity Loan Calculator
Calculate monthly payments and borrowing limits for home equity loans. Enter values for instant results with step-by-step formulas.
Formula
Payment = P x [r(1+r)^n] / [(1+r)^n - 1]
Where P = Loan principal amount, r = Monthly interest rate (annual rate / 12), n = Total number of monthly payments (years x 12). Maximum borrowable equity = Home Value x Max LTV% - Current Mortgage Balance.
Worked Examples
Example 1: Home Renovation Equity Loan
Problem: Your home is worth $400,000 with a $250,000 mortgage. You want a $50,000 equity loan at 8.5% for 15 years to remodel your kitchen.
Solution: Total Equity: $400,000 - $250,000 = $150,000 (37.5%)\nMax Borrowable (85% LTV): $400,000 x 0.85 - $250,000 = $90,000\nMonthly Payment: $50,000 x (0.007083 x 1.007083^180) / (1.007083^180 - 1) = $492.51\nTotal Paid: $492.51 x 180 = $88,651.80\nTotal Interest: $88,651.80 - $50,000 = $38,651.80\nCombined LTV: ($250,000 + $50,000) / $400,000 = 75%
Result: Monthly Payment: $492.51 | Total Interest: $38,652 | Combined LTV: 75%
Example 2: Debt Consolidation Equity Loan
Problem: Home worth $350,000 with $200,000 mortgage. You want $30,000 at 9% for 10 years to consolidate credit card debt.
Solution: Total Equity: $350,000 - $200,000 = $150,000 (42.9%)\nMax Borrowable (85% LTV): $350,000 x 0.85 - $200,000 = $97,500\nMonthly Payment: $30,000 x (0.0075 x 1.0075^120) / (1.0075^120 - 1) = $380.03\nTotal Paid: $380.03 x 120 = $45,603.60\nTotal Interest: $45,603.60 - $30,000 = $15,603.60\nCombined LTV: ($200,000 + $30,000) / $350,000 = 65.7%
Result: Monthly Payment: $380.03 | Total Interest: $15,604 | Combined LTV: 65.7%
Frequently Asked Questions
What is a home equity loan and how does it differ from a HELOC?
A home equity loan is a second mortgage that provides a lump sum of money at a fixed interest rate, repaid over a set term with predictable monthly payments. This differs fundamentally from a Home Equity Line of Credit (HELOC), which works like a credit card with a variable rate and a draw period where you borrow as needed. Home equity loans are ideal when you need a specific amount for a defined purpose like a renovation or debt consolidation because the fixed rate and fixed payment make budgeting straightforward. HELOCs offer more flexibility but come with the risk of rising interest rates and variable payments that can increase significantly over time.
How much equity do I need to qualify for a home equity loan?
Most lenders require you to maintain at least 15 to 20 percent equity in your home after taking out the equity loan, meaning your combined loan-to-value ratio cannot exceed 80 to 85 percent. Some lenders allow up to 90 percent combined LTV, but these loans typically carry higher interest rates and may require private mortgage insurance. To calculate your available equity, subtract your current mortgage balance from your home appraised value, then subtract the minimum equity the lender requires you to keep. For example, on a $400,000 home with a $250,000 mortgage and an 85 percent LTV limit, you can borrow up to $400,000 times 0.85 minus $250,000 which equals $90,000.
Are home equity loan interest payments tax deductible?
Under the Tax Cuts and Jobs Act of 2017, home equity loan interest is tax deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan. This means interest on a home equity loan used for a kitchen renovation or adding a room is deductible, but interest on a loan used for debt consolidation, vacation, or other personal expenses is not. The combined mortgage debt limit for the deduction is $750,000 for loans originating after December 15 2017, or $1 million for older loans. Always consult a tax professional to determine your specific eligibility because the rules depend on your individual circumstances and how you use the funds.
What interest rate can I expect on a home equity loan?
Home equity loan rates are typically 1 to 3 percentage points higher than first mortgage rates because they represent a second lien position, making them riskier for the lender if you default. Current rates generally range from 7 to 12 percent depending on your credit score, LTV ratio, debt-to-income ratio, and loan amount. Borrowers with excellent credit scores above 740 and low LTV ratios below 60 percent typically qualify for the best rates. Some lenders also charge origination fees, appraisal fees, and closing costs that add 2 to 5 percent to the upfront cost. Shopping around with at least three to five lenders can save you thousands of dollars over the life of the loan.
What are the risks of taking out a home equity loan?
The primary risk is that your home serves as collateral, meaning the lender can foreclose if you fail to make payments. This makes home equity loans fundamentally different from unsecured debt like credit cards or personal loans where the worst consequence is damaged credit. Additional risks include falling home values that could leave you underwater owing more than your home is worth, the temptation to borrow more than necessary because large amounts are available, and the long repayment terms that mean you pay significant interest over time. You also need to factor in closing costs and fees that reduce the effective amount you receive from the loan.
How does loan-to-value ratio affect my home equity loan options?
The loan-to-value ratio is the most critical factor in determining both approval and pricing for home equity loans. Your combined LTV equals your total mortgage debt divided by your home current appraised value, expressed as a percentage. Lower LTV ratios mean less risk for the lender and translate directly to better interest rates and terms. At 60 percent combined LTV, you will receive the most competitive rates available. Between 70 and 80 percent, rates increase moderately. Above 80 percent, rates jump significantly and some lenders will not approve the loan at all. Home Equity Loan Calculator lets you adjust the LTV limit to see how it affects your maximum borrowable amount.