Home Equity Loan Calculator
Home Equity Loan Benefits
- ✓Fixed interest rate - predictable payments
- ✓Lump sum disbursement
- ✓Lower rates than personal loans
- ✓Interest may be tax-deductible
Related Calculators
Understanding Home Equity Loans
What is a Home Equity Loan?
A home equity loan (also called a second mortgage) allows you to borrow a lump sum against your home's equity. Unlike a HELOC, you receive all the money upfront and repay it with fixed monthly payments over a set term.
How Much Can You Borrow?
The amount you can borrow depends on your Combined Loan-to-Value ratio (CLTV):
Example
Home Value: $400,000
Mortgage Balance: $250,000
Max CLTV: 80%
$400,000 x 80% = $320,000
$320,000 - $250,000 = $70,000 max loan
Home Equity Loan vs. HELOC
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Disbursement | Lump sum | Draw as needed |
| Interest Rate | Fixed | Variable |
| Monthly Payment | Fixed, predictable | Varies |
| Best For | One-time expense | Ongoing expenses |
| Closing Costs | 2-5% of loan | Often lower/none |
Common Uses
Good Uses
- Home improvements/renovations
- Debt consolidation (high-interest)
- Major one-time expenses
- Education costs
Risky Uses
- Vacations or luxury purchases
- Investment speculation
- Covering daily expenses
- Buying a car (use auto loan instead)
Requirements
- Credit score: Typically 620+ (better rates at 700+)
- Equity: Usually at least 15-20% equity required
- Debt-to-income: Usually 43% or less
- Income verification: Proof of stable income
Tax Considerations
Interest on home equity loans may be tax-deductible if the funds are used to "buy, build, or substantially improve" the home that secures the loan. Interest on funds used for other purposes (like debt consolidation) is generally not deductible.
Important Warnings
- Your home is collateral - you could lose it if you can't make payments
- Closing costs can be 2-5% of the loan amount
- Taking on more debt reduces your financial flexibility
- Home values can decline, potentially leaving you "underwater"
- Consult a tax advisor about deductibility of interest
Frequently Asked Questions
What is a home equity loan?
A home equity loan (also called a second mortgage) lets you borrow a lump sum against your home's equity at a fixed interest rate. You receive all the money upfront and repay it with fixed monthly payments over a set term, typically 5-30 years. Unlike a HELOC, the rate and payment never change.
How much equity do I need for a home equity loan?
Most lenders require at least 15-20% equity remaining after the loan. They typically cap the Combined Loan-to-Value (CLTV) at 80-85%. For example, on a $400,000 home with $250,000 mortgage: ($400,000 x 80%) - $250,000 = $70,000 maximum loan. Good credit may qualify for higher limits.
Is home equity loan interest tax deductible?
Interest on home equity loans may be tax-deductible if the funds are used to 'buy, build, or substantially improve' the home securing the loan, subject to overall mortgage interest limits. Interest on loans used for other purposes (debt consolidation, tuition, etc.) is generally not deductible. Consult a tax professional for your specific situation.
Should I get a home equity loan or HELOC?
Choose a home equity loan for one-time expenses when you want fixed, predictable payments (renovations, debt consolidation). Choose a HELOC for ongoing or uncertain expenses when you want flexibility to draw as needed (emergency fund, ongoing projects). The best choice depends on how you'll use the funds and your comfort with variable rates.