Home Equity Loan Calculator
Calculate home equity loan payments, total costs, and maximum borrowing power based on your home value, mortgage balance, and LTV ratio.
MONTHLY PAYMENT
$985/mo
TOTAL INTEREST
$77,253
CLOSING COSTS
$3,000
TOTAL COST
$180,253
EFFECTIVE APR
9.016%
HOME EQUITY LOAN vs ALTERNATIVES
| Feature | Home Equity Loan | HELOC | Cash-Out Refinance |
|---|---|---|---|
| Rate Type | Fixed β | Variable | Fixed or Variable |
| Disbursement | Lump sum | Draw as needed | Lump sum |
| Typical Rate | 8-10% | 7-9% | 6-8% |
| Closing Costs | 2-5% | 0-2% | 2-6% |
| Tax Deductible | If for home improvement | If for home improvement | Mortgage interest |
| Best For | One-time large expense | Ongoing expenses | Lower rate + cash |
π How Home Equity Loan is Calculated
Determine home equity
$500,000 (home value) β $250,000 (mortgage)= Equity: $250,000 (50%)
Calculate max borrowable
$500,000 Γ 80% LTV β $250,000 mortgage= Max loan: $150,000
Monthly payment
PMT(8.5%/12, 180 months, $100,000)= $985/month
Total cost
$985 Γ 180 + $3,000 closing costs= $180,300 total
Rate Comparison
Home Equity Loan
8.5% fixed
Lump sum | Fixed payment | 15-year term
HELOC
7.5% variable
Draw as needed | Rate can change | 10+20 yr
Cash-Out Refinance
6.8% fixed
Replaces mortgage | Closing costs 2-6%
Risk Warning: Your Home Is Collateral
π‘ What Is a Home Equity Loan?
How Home Equity Loans Work
A home equity loan is a second mortgage that lets you borrow against the equity you've built in your home. Equity = Home Value β Mortgage Balance. If your home is worth $500,000 and you owe $250,000, you have $250,000 in equity (50%). Lenders typically let you borrow up to 80% of your home's value (combined with your existing mortgage), meaning you could access up to $150,000.
Unlike a HELOC (Home Equity Line of Credit), a home equity loan gives you the full amount as a lump sum with a fixed interest rate and fixed monthly payments for the life of the loan β typically 5 to 30 years.
LTV Formula and Qualification
Max Loan = (Home Value Γ Max LTV%) β Existing Mortgage Balance
| Requirement | Typical Range | Best Rate Threshold |
|---|---|---|
| Credit Score | 620-680 minimum | 740+ for best rates |
| Combined LTV | 80% maximum | 70% or less |
| Debt-to-Income (DTI) | 43% maximum | 36% or less |
| Home Equity | 15-20% minimum | 30%+ preferred |
Costs of a Home Equity Loan
Upfront/Closing Costs (2-5% of loan):
- Appraisal fee: $300-$600
- Origination fee: 0.5-1% of loan amount
- Title search and insurance: $100-$400
- Recording fees: $25-$250
- Attorney/notary fees: varies by state
Ongoing costs: Fixed monthly payments (principal + interest). At the beginning of the loan, most of each payment goes to interest. Over time, the principal portion increases β standard amortization.
5 Common Uses of Home Equity Loans
- Major home improvements β Kitchen remodel ($25K-$75K), roof replacement ($8K-$15K), additions. May increase home value and qualify for tax-deductible interest
- Debt consolidation β Replace 15-25% credit card rates with 8-10% HEL rate. Can save thousands in interest. But converts unsecured debt to secured (home at risk)
- Education costs β College tuition when federal student loans are insufficient. Compare HEL rates vs private student loan rates
- Medical expenses β Large medical bills, elective procedures not covered by insurance
- Emergency large expenses β Major car repair, unexpected home damage not covered by insurance
Home Equity Loan vs HELOC vs Cash-Out Refinance
| Home Equity Loan | HELOC | Cash-Out Refinance | |
|---|---|---|---|
| Type | Installment (lump sum) | Revolving credit line | New primary mortgage |
| Rate | Fixed (8-10%) | Variable (7-9%) | Fixed or variable (6-8%) |
| Payment | Fixed monthly | Interest-only during draw | Fixed monthly |
| Closing Costs | 2-5% | 0-2% | 2-6% |
| Tax Deductible | If for home improvement | If for home improvement | All mortgage interest (up to $750K) |
| Risk | Second lien on home | Second lien on home | Replaces existing mortgage |
| Best for | One-time large known expense | Ongoing/uncertain costs | Lower rate + need cash |
Tax Deductibility Rules (Post-2017)
Under the Tax Cuts and Jobs Act, home equity loan interest is only deductible when the loan proceeds are used to buy, build, or substantially improve the home securing the loan. The combined mortgage + HEL balance must not exceed $750,000 ($375,000 if married filing separately). Interest on home equity loans used for debt consolidation, education, medical bills, or other purposes is not tax deductible.