# Home Equity Calculator

See how much you might be able to borrow from your home. Just enter some basic information in our home equity loan calculator to find out.

## How do we calculate this amount?

We use your address to find your estimated home value and estimated mortgage balance. You can edit these fields if the estimates are not correct. We use these numbers to calculate your LTV ratio, which then helps us find your home equity and how much money you can borrow.

Valuation analytics sourced from HouseCanary

## What is loan-to-value (LTV)?

The amount you can borrow is based largely on your loan-to-value ratio, or LTV ratio. This is the ratio between the value of your property and any outstanding loans on the property. It’s calculated by dividing the amount you still owe on your mortgage by the market value of your home.

## What's the difference between a home equity loan and a line of credit?

A home equity loan gives you funds in a one-time lump sum. A home equity line of credit (HELOC) works more like a credit card, in that you're given a line of credit that you can continually borrow from and pay back over a set time frame.

## What is a home equity loan and how does it work?

A home equity loan is a type of loan that uses your home as collateral to secure the debt. There are two types of home equity loans: home equity loans and home equity lines of credit (HELOCs).

Home equity loans are similar to personal loans in that the lender issues you a lump sum payment and you repay the loan in fixed monthly installments. A HELOC operates similar to a credit card in that you borrow money on an as-needed basis. HELOCs come with draw periods that normally last 10 years. During this period, you can use money from the credit line, and you’re only responsible for making interest payments.

Both options require you to have a certain amount of home equity; this is the portion of the home you actually own. Lenders typically require that you have between 15 percent and 20 percent equity in your home. To calculate your home’s equity, divide your current mortgage balance by your home’s market value. For example, if your current balance is \$100,000 and your home’s market value is \$400,000, you have 25 percent equity in the home.

Using a home equity loan can be a good choice if you can afford to pay it back. However, if you can’t afford to repay the loan, you risk the lender foreclosing on your home. This can ruin your credit, making it hard to qualify for other loans in the future.

## Basic uses for home equity loans

Debt consolidation and home improvements are the most common reasons homeowners borrow from their equity, says Greg McBride, CFA, chief financial analyst for Bankrate. There are other reasons borrowers may tap home equity, such as education costs, vacations or other big ticket purchases.

Under the Tax Cuts and Jobs Act of 2017, borrowers can deduct the interest paid on HELOCs and home equity loans if they use the funds to buy, build or improve the home that acts as collateral for the loan.

Home equity loan rates can vary depending on the lender and home equity product you choose. For example, home equity loan rates ranged from 5.1 percent to 5.89 percent in 2020, while HELOC rates ranged from 4.52 percent to 6.2 percent.

One drawback is that home equity loans and lines of credit have closing costs and fees similar to a standard mortgage. Closing costs vary but can run into the thousands of dollars based on the value of a property.

## How to apply for a home equity loan

To apply for a home equity loan, start by checking your credit score, calculating the amount of equity you have in your home and reviewing your finances.

Next, research home equity rates, minimum requirements and fees from multiple lenders to determine whether you can afford a loan. While doing so, make sure the lender offers the type of home equity product you need — some only offer home equity loans or HELOCs rather than both.

When you apply, the lender will ask for personal information such as your name, date of birth and Social Security number. You’ll also be asked to submit documentation, which may include tax returns, pay stubs and proof of homeowners insurance.

## The bottom line

Using a home equity loan to pay for a major home improvement or consolidate debt can be a smart decision if you have enough equity in your home and can afford to repay the loan. Compared with other options, home equity loans usually have lower rates since they use your home as collateral. Use our home equity calculator to see if you have enough equity in your home to qualify and to check your rates.