Home Equity Loan Calculator
Calculate your monthly payment, total interest, and view complete amortization schedule
Loan Details
Payment Summary
Amortization Schedule
| Year | Interest | Principal | Ending Balance |
|---|
Home Equity Loan Qualification Calculator
Estimate the maximum home equity loan amount you may be able to borrow
Your Home Equity
Borrowing Capacity
Home Equity Loan Calculator – Calculate Payments, Costs & Borrowing Power
Our comprehensive Home Equity Loan Calculator helps you understand both the cost of borrowing and how much equity you can access from your home. Whether you're planning a major renovation, consolidating debt, or funding a large expense, this tool provides accurate calculations for monthly payments, total interest costs, and your maximum borrowing capacity based on your home's value and existing mortgage balance.
What Is a Home Equity Loan?
A home equity loan, often referred to as a second mortgage, is a type of secured loan that allows homeowners to borrow money using the equity in their home as collateral. Unlike a Home Equity Line of Credit (HELOC), which provides revolving credit, a home equity loan gives you a lump sum of money upfront that you repay over a fixed term with predictable monthly payments.
Because your home secures the loan, lenders typically offer lower interest rates compared to unsecured debt like credit cards or personal loans. Most home equity loans feature fixed interest rates, meaning your monthly payment remains consistent throughout the life of the loan, making budgeting easier and protecting you from interest rate fluctuations.
How Much Can You Borrow with a Home Equity Loan?
The amount you can borrow depends primarily on your loan-to-value (LTV) ratio, which compares the total debt on your home to its current market value. Most lenders set a maximum combined LTV ratio of 80%, though some may go as high as 90% for borrowers with excellent credit.
Borrowing Capacity Example:
Home Value: $500,000
Existing Mortgage Balance: $230,000
Maximum LTV: 80%
Calculation: ($500,000 × 80%) − $230,000 = $170,000 maximum loan
Your actual approved amount may be lower based on additional factors including your credit score, debt-to-income ratio, employment history, and the lender's specific requirements.
Home Equity Loan Qualification Requirements
Beyond having sufficient equity in your home, lenders evaluate several key factors when considering your application:
- Credit Score: Most lenders require a minimum credit score of 620-680, with better rates available for scores above 740
- Debt-to-Income Ratio (DTI): Your total monthly debt payments (including the new loan) typically shouldn't exceed 43-50% of your gross monthly income
- Employment and Income: Stable employment history and verifiable income are essential
- Home Equity: You generally need at least 15-20% equity remaining in your home after the loan
- Property Condition: Your home must be in good condition and properly insured
- Payment History: A strong track record of on-time mortgage and debt payments
Understanding Home Equity Loan Costs
Upfront & Closing Costs
Home equity loans typically come with closing costs ranging from 2% to 5% of the loan amount. These may include:
- Application and origination fees (0.5% - 1% of loan amount)
- Home appraisal fee ($300 - $600)
- Title search and insurance ($700 - $1,500)
- Attorney and document preparation fees ($500 - $1,000)
- Recording fees and government taxes (varies by location)
Some lenders offer "no-closing-cost" home equity loans, but these typically come with higher interest rates or prepayment penalties that can cost you more over time.
Understanding APR vs. Interest Rate
The Annual Percentage Rate (APR) provides a more complete picture of your loan's true cost than the interest rate alone. While the interest rate only reflects the cost of borrowing the principal, APR includes closing costs and fees spread over the loan term, giving you a better comparison tool when shopping for loans.
Common Uses for Home Equity Loans
Homeowners commonly use home equity loans for major expenses that benefit from predictable payments and lower interest rates:
- Home Improvements & Renovations: Kitchen remodels, bathroom upgrades, additions, or necessary repairs that increase home value
- Debt Consolidation: Paying off high-interest credit cards, personal loans, or medical bills
- Education Expenses: College tuition, vocational training, or continuing education costs
- Major Life Events: Weddings, adoption expenses, or once-in-a-lifetime experiences
- Emergency Expenses: Unexpected medical bills or urgent home repairs
- Business Investment: Starting or expanding a small business
Important: Because your home secures the loan, failure to repay could result in foreclosure. Only borrow what you can comfortably afford to repay, and use the funds for purposes that improve your financial situation.
Home Equity Loan vs. Alternatives
Home Equity Line of Credit (HELOC)
How it works: Revolving credit line you can draw from as needed during a "draw period" (typically 5-10 years), followed by a repayment period.
Best for: Ongoing expenses or projects where you need flexible access to funds over time.
Key difference: Variable interest rates that can increase over time, making budgeting less predictable.
Cash-Out Refinance
How it works: Replace your existing mortgage with a new, larger loan and receive the difference in cash.
Best for: When current mortgage rates are lower than your existing rate, allowing you to access equity while potentially lowering your overall interest rate.
Key difference: Resets your mortgage term and may require more extensive qualification than a home equity loan.
Personal Loan
How it works: Unsecured loan based on your creditworthiness without using your home as collateral.
Best for: Smaller amounts when you don't want to risk your home or have limited equity.
Key difference: Higher interest rates but faster approval and no risk to your home.
How to Use This Calculator
Loan Payment Calculator
- Enter your desired loan amount (the total you want to borrow)
- Input the interest rate quoted by your lender (annual percentage)
- Select your loan term in years (typically 5-30 years)
- Check "Include closing costs" if applicable and enter the amount
- Choose whether closing costs will be deducted from your loan or paid upfront
- Click "Calculate" to see your monthly payment, total interest, APR, and complete amortization schedule
Borrowing Capacity Calculator
- Enter your current home value (use a recent appraisal or market estimate)
- Input your outstanding mortgage balance (current amount owed)
- Select the LTV ratio your lender allows (typically 80%)
- Click "Calculate" to see your maximum borrowing capacity
Frequently Asked Questions (FAQs)
What's the difference between a home equity loan and a HELOC?
A home equity loan provides a lump sum with fixed monthly payments and a fixed interest rate, while a HELOC works like a credit card with a revolving credit line and variable interest rates. Home equity loans are better for one-time expenses with predictable costs, while HELOCs suit ongoing projects or expenses where you need flexible access to funds.
How long does it take to get approved for a home equity loan?
The approval process typically takes 2-6 weeks from application to funding. This includes time for credit review, home appraisal, title search, and underwriting. Some lenders offer expedited processing, but thorough documentation and a strong application can speed up the timeline.
Can I deduct home equity loan interest on my taxes?
Under current tax law, home equity loan interest is only tax-deductible if you use the funds to "buy, build, or substantially improve" the home securing the loan. Interest on loans used for other purposes (like debt consolidation or education) is not deductible. Consult a tax professional for guidance specific to your situation.
What happens if I can't make my home equity loan payments?
Because your home secures the loan, failure to make payments can result in foreclosure, just like with your primary mortgage. If you experience financial hardship, contact your lender immediately to discuss options like payment modifications, forbearance, or refinancing before missing payments.
Should I pay closing costs upfront or roll them into the loan?
Paying closing costs upfront means you'll borrow less and pay less interest over time. Rolling them into the loan increases your total debt and results in higher monthly payments and more interest paid. However, if you don't have cash available for upfront costs, financing them may be your only option. Use our calculator to compare both scenarios.
What credit score do I need for a home equity loan?
Most lenders require a minimum credit score of 620-680, though requirements vary by lender. Borrowers with scores above 740 typically qualify for the best interest rates. If your score is below 620, consider improving your credit before applying or exploring alternative financing options.
How much equity do I need to qualify?
You typically need at least 15-20% equity remaining in your home after the loan. With an 80% LTV limit, this means having at least 20% equity before borrowing. Some lenders may allow higher LTV ratios (up to 90%) but usually require excellent credit and charge higher interest rates.
Can I pay off my home equity loan early?
Most home equity loans allow early repayment without penalties, but some lenders charge prepayment penalties if you pay off the loan within the first few years. Always review your loan documents and ask about prepayment terms before signing. Early repayment can save you thousands in interest charges.
What's a good interest rate for a home equity loan?
Home equity loan rates vary based on the prime rate, your credit score, LTV ratio, and loan amount. As of 2024-2025, rates typically range from 6% to 12%. Borrowers with excellent credit (750+) and lower LTV ratios (below 70%) can often secure rates at the lower end of this range. Shop multiple lenders to find the best rate.
Do I need a new home appraisal?
Yes, most lenders require a professional appraisal to determine your home's current market value before approving a home equity loan. This typically costs $300-$600 and ensures the lender is not lending more than your property is worth. Some lenders may waive this requirement for smaller loan amounts.
Related Resources & External Resources
📊 Rental Property Calculator
Considering investment property? Calculate potential rental income, expenses, cash flow, and ROI to determine if a rental property is a good investment.
Calculate Rental Returns →🏠 House Affordability Calculator
Planning to buy a new home? Determine how much house you can afford based on your income, debts, down payment, and current interest rates.
Check Affordability →🏛️ Consumer Financial Protection Bureau
Official government resource providing comprehensive guidance on home equity loans, consumer rights, and how to avoid predatory lending practices.
Visit CFPB Guide →Smart Borrowing: Final Tips
- Shop around: Compare offers from at least 3-5 lenders including banks, credit unions, and online lenders
- Check your credit first: Review your credit report and score before applying to identify any issues
- Consider the total cost: Look beyond monthly payments to understand total interest and APR
- Have a repayment plan: Ensure you can afford payments even if your income decreases
- Use funds wisely: Prioritize uses that improve your financial position or increase home value
- Maintain an emergency fund: Don't use all your equity; keep reserves for unexpected expenses
- Read the fine print: Understand all terms, fees, and penalties before signing
Disclaimer: This calculator provides estimates for educational purposes only. Actual loan terms, rates, and qualifying amounts will vary based on lender requirements, your creditworthiness, property value, and other factors. Always consult with qualified financial advisors and lenders before making borrowing decisions. The calculations assume fixed-rate loans with standard amortization and do not account for potential rate changes, late fees, or other special circumstances.