Home Equity Loan Calculator

The Complete Homeowner's Guide to Home Equity Loans

A Home Equity Loan, often called a "second mortgage," is a type of consumer debt that allows you to borrow against the equity you've built in your home. Equity is the difference between your home's current market value and the amount you still owe on your mortgage. This Home Equity Loan Calculator helps you determine how much you might be able to borrow and what your fixed monthly payments would look like.

Home Equity Loan vs. HELOC: The Critical Difference

Homeowners often confuse these two products, but they function very differently. Choosing the right one depends entirely on your financial needs.

Home Equity Loan (This Calculator)

• Structure: A lump-sum installment loan. You receive all the money at once.
• Interest Rate: Almost always a **fixed rate**.
• Payments: A **fixed monthly payment** of principal and interest for the entire loan term.
• Best For: Large, one-time expenses where you know the exact cost, such as a major home renovation, a large medical bill, or consolidating a specific amount of high-interest debt. Use our Debt Consolidation Calculator to run the numbers.

HELOC (Home Equity Line of Credit)

• Structure: A revolving line of credit, like a credit card. You can draw funds as needed, repay them, and draw again.
• Interest Rate: Almost always a **variable rate**, tied to the Prime Rate.
• Payments: Variable. Typically interest-only during an initial "draw period," followed by fully amortized payments in a "repayment period."
• Best For: Ongoing or unpredictable expenses, such as a multi-stage renovation project or as a flexible emergency fund. Compare payments with our HELOC Calculator.

How Much Can You Borrow? The LTV Rule

Lenders determine your maximum loan amount based on your home's Combined Loan-to-Value (CLTV) ratio. Most lenders cap the CLTV at 80% or 85%.

Example: Your home is worth \$500,000, you owe \$250,000, and the lender's LTV limit is 85%.
Your maximum borrowing power is (\$500,000 × 0.85) - \$250,000 = \$175,000. This is the total equity you can tap between your first and second mortgages.

Pros and Cons of a Home Equity Loan

Advantages:

• Predictability: The fixed interest rate and fixed monthly payment make budgeting simple and predictable. You are protected from rising interest rates.
• Lower Interest Rates: Because the loan is secured by your home, interest rates are typically much lower than unsecured personal loans or credit cards.
• Lump Sum: You get all the cash at once, which is ideal for a large, immediate expense.

Disadvantages:

• Lack of Flexibility: You start paying interest on the entire loan amount immediately, even if you don't need all the cash right away.
• Closing Costs: Like a primary mortgage, home equity loans come with closing costs, which can range from 2% to 5% of the loan amount.
• Foreclosure Risk: This is the most significant risk. Your home is the collateral. If you fail to make payments, the lender can foreclose on your property.