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A home equity loan calculator is a good way to start exploring price options for tapping the equity in your home. You can use this calculator to get an idea of whether you can qualify for a home equity loan, how much money you might qualify for and what it may cost you.
How To Calculate Your Home Equity
Home equity is the difference between how much your house is currently worth and how much you owe on it. To find out how much equity you have, first, get the most recent appraised value; then subtract your mortgage balance and any loans secured by your home—like a home equity loan or home equity line of credit (HELOC)—from that value. The remaining total is the amount of equity you have in your home.
How To Use the Home Equity Loan Calculator
To get started, you’ll need three main pieces of information:
- Your current home value
- The outstanding balance of your mortgage and any other loans secured by your home
- You FICO credit score
The calculator will estimate your loan amount based on this information. If you don’t have enough equity in your home or your credit score is low, you may not qualify for a home equity loan.
While the calculator can give an estimate of how much you can borrow, talk to your lender to get accurate results based on a wider range of information.
Related: Best Home Equity Loan Lenders
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What Is a Home Equity Loan?
A home equity loan is a fixed-rate, lump-sum loan whose amount is determined by how much equity the borrower has in their home. The homeowner can borrow up to 85% of their home equity, to be paid back monthly over a five- to 30-year period depending on the loan term.
The borrower receives the entire loan amount upfront—instead of having a line of credit to draw on as needed. As a result, the borrower pays interest on the entire loan.
How Does a Home Equity Loan Work?
Home equity loans are a type of loan that uses your home as collateral and allows you to borrow against that equity. They are considered a second mortgage.
Borrowers will receive their loan in one lump sum. The repayment timeline can range from five years to 30 years, depending on the terms of your loan. The longer you take to pay it off, the more interest you’ll end up paying. Interest rates on home equity loans are fixed and generally lower than rates for credit cards or personal loans.
Home Equity Loan vs. HELOC
A home equity loan works differently when compared to a home equity line of credit (HELOC). While you get the entire amount upfront with a home equity loan, a home equity line of credit allows you to borrow up to a certain amount against the value of the home on an as-needed basis.
HELOCs are divided into two different parts—the draw period and the repayment period. In the draw period, you can borrow money up to your credit limit as many times as you want, and you only have to make monthly payments to cover the interest owed for the month. At the end of the draw period, you’ll enter the repayment period, during which you’ll repay the loan over several years.
How To Get a Home Equity Loan
Qualifying for a home equity loan is similar to qualifying for a mortgage. You’ll have to prove creditworthiness, or that you can repay the loan. Lenders will check your credit score, income, debt-to-income (DTI) ratio and maximum loan-to-value (LTV) ratio. Lenders typically prefer your DTI to be less than 43% (though some will allow slightly higher) and an LTV of no more than 80%.
Lender requirements vary but in general, you’ll need to have at least 20% equity in your home to qualify for a loan.
Are Home Equity Loans a Good Idea?
Home equity loans have advantages and disadvantages. On the plus side, they come with a lower interest rate compared to unsecured loans, like a personal loan. The fixed interest rate also gives you more certainty, and the interest on the loan may be tax deductible if the money is used for certain home improvement projects.
On the downside, you will have to pay closing costs—between 2% to 5% of the total loan amount. Interest also accrues on the entire loan amount and shrinks how much equity you have in your home. A home equity loan can also be risky if your local housing market craters and you end up owing more than your home is worth. You will also have to pay the entire outstanding balance if you choose to sell your home.
Frequently Asked Questions (FAQs)
How hard is it to get a home equity loan?
The process for getting a home equity loan is similar to qualifying for a mortgage. So long as you are able to demonstrate your creditworthiness, ability to repay and you have at least 20% equity in your home, you should have no problems qualifying.
How much can I borrow with a home equity loan?
You can borrow up to 85% of your home equity, although in some cases this number can vary depending on your other qualifications.
How long does it take to get a home equity loan?
It takes between two and six weeks to get a home equity loan from application to closing.
Is a cash-out refinance or home equity loan better?
A cash-out refinance allows you to refinance your home for more than what you still owe on your existing mortgage and receive the extra amount as a lump sum payment. Taking this option might allow you to get a lower interest rate than a home equity loan. This is because refinancing acts as a first mortgage and so is considered less risky by lenders.
This is a good alternative if you need to pay for a large renovation project, consolidate debt or cover other large expenses.
What can a home equity loan be used for?
A home equity loan can be used for anything, especially items with a large price tag such as home renovations, college tuition or medical expenses.
What is needed for a home equity loan?
To qualify for a home equity loan, most lenders ask that you meet the following requirements:
- Credit score of at least 620
- Home equity of at least 15% to 20%
- Strong income and employment history
- A DTI ratio of 43% or less
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