Home Equity Loan Calculator
Home Equity Loan Estimator
A home equity loan is a type of second mortgage that allows homeowners to borrow against the equity they have built up in their property. Equity is the difference between the current market value of your home and the outstanding balance on your first mortgage. Home equity loans provide a lump sum of cash that is repaid over a fixed term at a fixed interest rate, making them a popular choice for financing major expenses such as home renovations, debt consolidation, education costs, or medical bills.
Unlike a Home Equity Line of Credit (HELOC), which functions more like a credit card with a revolving balance and variable interest rates, a home equity loan provides a single one-time disbursement with predictable monthly payments. This makes it easier to budget and plan, as the interest rate and payment amount remain constant throughout the loan term. The fixed-rate nature of home equity loans is particularly attractive in a rising interest rate environment, as borrowers can lock in a rate for the entire repayment period.
Understanding how home equity loans work is essential for any homeowner considering tapping into their home's value. The amount you can borrow is determined by the loan-to-value ratio (LTV) that lenders are willing to accept, which typically ranges from 80 percent to 90 percent of your home's appraised value. Lenders also consider your credit score, debt-to-income ratio, and payment history when approving a home equity loan application. Because the loan is secured by your home, interest rates on home equity loans are generally lower than unsecured loans or credit cards.
Home equity loans are commonly used for home improvement projects that increase the property's value, creating a virtuous cycle where the improvement project adds more equity than the loan amount borrowed. Other popular uses include paying for higher education, consolidating high-interest credit card debt, and covering large medical expenses.
Begin by entering the current market value of your home. This should be a realistic estimate based on comparable properties in your area or a recent professional appraisal. Overestimating your home value will result in an inflated borrowing capacity estimate.
Next, enter the outstanding balance on your existing first mortgage. This is the remaining principal you still owe, not including future interest payments. Enter the loan-to-value ratio your lender is willing to offer. Most lenders cap home equity loans at 80 percent LTV, though some offer up to 90 percent for borrowers with excellent credit.
Enter the annual interest rate and loan term in years. Home equity loan terms typically range from 5 to 30 years. A shorter term means higher monthly payments but lower total interest costs. Press Calculate to see your maximum borrowing capacity, estimated monthly payment, total interest paid, and combined loan-to-value ratio.
For example, if your home is valued at $400,000 with $200,000 owed on the first mortgage, an 85 percent LTV, 7.5 percent rate, and 15-year term, you could borrow up to $240,000 with a monthly payment of approximately $1,297.
The maximum loan amount is determined by the lender's LTV ratio:
For example, a home valued at $500,000 with a $300,000 mortgage and 80 percent LTV yields a maximum loan of $100,000.
The monthly payment uses the standard amortizing payment formula:
Where i is the monthly interest rate and N is the total number of monthly payments.
Total interest paid over the loan term is:
The combined loan-to-value ratio (CLTV) after the home equity loan is: CLTV = (OutstandingMortgage + MaxLoan) / HomeValue. Lenders typically want CLTV to remain below 90 percent.
Borrowing capacity and payment estimates at 7.5 percent interest, 15-year term:
| Home Value | Mortgage | 80% LTV Max | Monthly Pmt |
|---|---|---|---|
| $300K | $150K | $90K | $834 |
| $400K | $200K | $120K | $1,112 |
| $500K | $300K | $100K | $927 |
| $750K | $400K | $200K | $1,854 |
| $1M | $500K | $300K | $2,781 |
Shop around with multiple lenders including banks, credit unions, and online lenders. Closing costs on home equity loans typically range from 2 percent to 5 percent of the loan amount. Some lenders offer no-closing-cost options in exchange for a slightly higher interest rate.
Consider the purpose of the loan carefully. Using home equity for improvements that increase property value is generally wise. Using it to consolidate high-interest credit card debt can save money if you avoid running up the cards again. The interest may be tax deductible if the funds are used to buy, build, or substantially improve your home.
Keep a margin of safety below the maximum LTV. If you need to sell your home unexpectedly, a high CLTV could leave you owing more than the home is worth, making a sale difficult or impossible without bringing cash to closing.
This calculator provides estimates based on simplified assumptions about LTV ratios and interest rates. Actual loan terms depend on lender-specific underwriting criteria, including credit score, debt-to-income ratio, employment history, and property appraisal results.
The calculator does not account for closing costs, origination fees, appraisal fees, or other expenses. Home equity loans are secured by your property; if you fail to make payments, the lender may foreclose on your home. Consider all risks carefully before using your home as collateral.
- How is the monthly payment calculated for a home equity loan?
- Using the standard amortization formula: M = P x [r(1+r)^n] / [(1+r)^n - 1]. Since it is a fixed-rate second mortgage, the payment stays the same for the entire term.
- What is the difference between a home equity loan and a HELOC?
- A home equity loan provides a lump sum at a fixed rate with fixed payments. A HELOC is a revolving line with variable rates and interest-only payments during draw. This calculator is for fixed-rate home equity loans.
- How does a home equity loan compare to a cash-out refinance?
- Cash-out refinance replaces your first mortgage with a larger one. Home equity loan is a separate second mortgage. Cash-out often has lower rates but higher closing costs.
- Can I still deduct the interest on a home equity loan?
- Interest is deductible only if the loan is used to buy, build, or substantially improve the home that secures the loan. Consult a tax professional for your situation.
- How much home equity do I need to qualify?
- Most lenders require 15-20% equity remaining after the loan. Combined LTV should be no more than 80-85%.
- Consumer Financial Protection Bureau. "What is a Home Equity Loan?" consumerfinance.gov.
- Federal Reserve. "Consumer Handbook on Adjustable-Rate Mortgages." federalreserve.gov.
- Bankrate. "Home Equity Loan Rates and Guidelines." bankrate.com.
- NerdWallet. "Home Equity Loans: Everything You Need to Know." nerdwallet.com.
- Investopedia. "Home Equity Loan: What It Is and How It Works." investopedia.com.
Last updated: May 12, 2026