# Home Equity Loan 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 in order to take out a home equity loan or line of credit.

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 calculate a home equity loan

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.

You can get an idea of your home’s equity easily using the above calculator. Simply input your address, home value (here are ways to estimate it) and what you still owe on your mortgage. Then choose your credit score to see how much you might be able to borrow via a home equity loan.

### How to build home equity

Building home equity is the first step to obtaining a home equity loan. It’s a lot easier to build equity if you made a larger down payment on the home initially, because you already have a sizable stake in the property.

Another way to build equity is to increase your home’s value by renovating it. (Keep in mind certain home improvement projects have a stronger return on investment than others.) In addition, you can build equity faster by making extra payments towards your mortgage principal, such as biweekly payments or one additional payment a year.

## 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 might tap home equity, as well, such as education costs, vacations or other big-ticket purchases.

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 serves as collateral for the loan.

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.

## HELOCs vs. home equity loans

Home equity loans give you a lump sum upfront, and you’ll repay the loan in fixed installments. The loan term can vary from five years to 30 years. Having a fixed amount could make impulse spending less likely, and make it easier to budget for your monthly payments. However, you can’t take out a higher amount to cover an emergency unless you obtain an additional loan, and you would have to refinance to take advantage of a lower interest rate.

In contrast, a HELOC is a revolving line of credit that taps your home equity up to a preset limit. HELOC payments aren’t fixed, and the interest rate is variable. You can draw as much as you need, up to the limit, during the draw period, which can last as long as 10 years. You’ll still make payments during the draw period, which are typically interest-only. After this period, you’ll repay both interest and principal over the loan’s remaining term.

Both HELOCs and home equity loans involve putting your home on the line as collateral, so they tend to offer better interest rates than unsecured debt such as a personal loan or credit card.

## 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.