Homeowners often look to home equity loans when they need a lump sum of money for renovations, education, or large purchases. With interest rates often lower than credit cards or personal loans, a home equity loan can be a smart financial move—but only if you understand how much you can borrow and what your monthly payments will be.
Home Equity Loan Calculator
What is a Home Equity Loan?
A home equity loan allows you to borrow against the equity you’ve built in your home. Equity is the difference between your home’s market value and your outstanding mortgage balance. The loan is usually paid back in fixed monthly installments over a set term, typically with a fixed interest rate.
How to Use the Bankrate Home Equity Loan Calculator
Using the calculator is straightforward. Here’s how it works:
- Enter your home’s current market value – This is the amount your home would sell for today.
- Input your current mortgage balance – The remaining amount you owe on your mortgage.
- Select your loan-to-value ratio (LTV) – Typically lenders allow you to borrow up to 85% of your home’s value, minus what you owe.
- Input the desired interest rate – The expected rate for your loan.
- Choose the loan term – This is how many years you want to repay the loan.
- Click “Calculate” – The tool will provide your estimated monthly payment and loan amount.
Formula Behind the Calculator
To help you understand how the calculator works, here are the formulas it uses:
Available Equity:
Home Value – Mortgage Balance
Maximum Loan Amount:
Home Value × LTV – Mortgage Balance
Monthly Payment (using the standard amortization formula):
P = [r × PV] / [1 – (1 + r)^-n]
Where:
- P = monthly payment
- r = monthly interest rate (annual rate ÷ 12)
- PV = present value or loan amount
- n = number of months (loan term × 12)
Example Calculation
Let’s assume:
- Home Value: $400,000
- Mortgage Balance: $220,000
- Loan-to-Value (LTV): 85%
- Interest Rate: 6.5%
- Loan Term: 15 years
Step 1: Calculate Maximum Loan Amount
Max Loan = ($400,000 × 0.85) – $220,000 = $340,000 – $220,000 = $120,000
Step 2: Calculate Monthly Payment
Loan Amount = $120,000
Monthly Interest Rate = 6.5% / 12 = 0.00542
Loan Term = 180 months
P = [0.00542 × 120,000] / [1 – (1 + 0.00542)^-180]
P ≈ $1,045.62/month
Benefits of Using the Calculator
- Informed Decisions: Avoid over-borrowing or surprises by understanding your payments in advance.
- Compare Options: Adjust interest rates or terms to see how they affect monthly payments.
- Save Time: Eliminate the need for manual calculations or consultations.
Key Insights to Consider
- Interest Rates Matter: Even a 1% change in interest rate can significantly affect your monthly payment and total interest paid.
- Loan Term Flexibility: Shorter terms result in higher payments but lower total interest. Longer terms offer lower payments but more interest.
- Equity Safety Margin: Lenders usually require you to retain at least 15% equity in your home to reduce default risks.
Common Uses for Home Equity Loans
- Home remodeling
- Education expenses
- Consolidating high-interest debt
- Emergency medical costs
- Funding a business
20 Frequently Asked Questions (FAQs)
1. What is the maximum I can borrow with a home equity loan?
Typically up to 85% of your home’s value minus your existing mortgage balance.
2. Is a home equity loan the same as a HELOC?
No. A home equity loan provides a lump sum, while a HELOC acts more like a credit line.
3. Does the calculator include taxes and insurance?
No, it only estimates principal and interest payments.
4. Is the interest tax-deductible?
Interest may be deductible if the loan is used for home improvements. Consult a tax advisor.
5. What credit score do I need to qualify?
Most lenders require a credit score of at least 620–700.
6. What’s the difference between LTV and CLTV?
LTV considers one loan; CLTV includes all loans secured by the home.
7. Can I use this calculator for rental properties?
It’s designed for primary residences but can be adapted for other property types.
8. How accurate are the results?
Estimates are reliable but may vary based on lender terms and your credit profile.
9. Will this affect my credit score?
Using the calculator won’t impact your credit score.
10. Can I repay the loan early?
Yes, but check with your lender for any prepayment penalties.
11. Does the interest rate stay fixed?
Yes, home equity loans usually come with fixed interest rates.
12. What happens if my home value drops?
You could owe more than your home is worth—this is known as being “underwater.”
13. How long does it take to get the funds?
Typically 2–6 weeks from application to disbursement.
14. Is there a minimum borrowing amount?
Many lenders set a minimum, often around $10,000.
15. Do I need an appraisal?
Yes, lenders often require a home appraisal to confirm value.
16. Are there fees involved?
Yes, you may face closing costs, appraisal, and origination fees.
17. What if I already have a second mortgage?
It can affect your borrowing power and approval likelihood.
18. Can I use the loan for any purpose?
Generally yes, unless restricted by your lender.
19. Is this a good option for debt consolidation?
Yes, if the interest rate is lower than your current debts.
20. Can I refinance a home equity loan?
Yes, refinancing is possible if you qualify for better terms.
Final Thoughts
The Bankrate Home Equity Loan Calculator is an essential tool for homeowners looking to unlock the financial potential of their home. By providing clear and accurate estimates of how much you can borrow and what you’ll pay monthly, it empowers you to make smart borrowing decisions.