This home equity loan calculator estimates your borrowing capacity and your monthly payment if you qualify for a new loan by considering your home current market value, outstanding mortgage balance and LTV ratio. There is more information on this topic below the tool.
How does this home equity loan calculator work?
This financial tool helps you figure out how much you can borrow by securing your new loan with the equity in your own home.
In case you qualify for such loan this application can determine as well the monthly payment value you will most probably pay regularly (if the term and an assumed interest rate are given).
In order to test your borrowing capacity through a new loan the following variables need to be provided:
- Your home current market value which represents the value of your property if would be for sale today. Specialized evaluators can help with this figure but it can also be found by analyzing the prices of the houses from your area or neighborhood.
- Outstanding mortgage balance is the balance you owe before analyzing the opportunity to take another loan.
- Loan-To-Value ratio indicates the minimum or the maximum LTV allowed by the lender. In practice the rule says that a maximum loan to value cannot be higher than 90%.
- Desired equity loan term represents the length in time of the new loan expressed either in months or years.
- Assumed interest rate in case you intent to simulate your monthly payment.
The algorithm behind this home equity loan calculator performs two steps as explained here:
1. First test if you qualify for a home equity loan:
- divide the outstanding mortgage balance by the current market value of your house and then multiply the obtained that results with 100 (A);
- compare the percentage obtained above (A) with the LTV ratio:
a) In case LTV is smaller than or equal to (A) then you cannot qualify for a new loan secured with your house.
b) If the LTV percentage is greater than the (A) value then you qualify for a home equity loan. The amount you can take is estimated by applying the LTV ratio to the market value of your home and then by subtracting the value of current mortgages.
2. Second figure out how much you will pay on a monthly basis in case the last two fields which are optional are filled in.
What is a home equity loan?
In finance, the home equity loan is a loan type that allows you take money based on your affordability which is tested by considering the market value of your property, the existing mortgage balance and a loan to value limit. The money taken through such a loan can be used by the borrower to finance various expenses with no restrictions such as: buy a new car, pay for children college, pay off credit card negative balance or even buy another house or building.
Example of a calculation
Assuming an individual with this situation let’s figure out if he qualifies for a new loan and which will be the regular payment value:
- Home current market value = $200,000
- Outstanding mortgage balance = $90,000
- LTV limit = 75%
- Desired new loan term = 15 years
- Assumed annual interest rate = 4.5%
■ With a loan to value ratio (LTV) of 75% you may qualify for an additional $60,000.00 home equity line of credit (HELOC).
■ Home value $200,000.00
■ Total loan to value: $60,000.00
■ Current mortgage balance: $90,000.00
■ Additional line of credit: (HELOC): $60,000.00
■ Monthly home equity loan payment: $459.00
■ Total paid for the home equity loan: $82,619.28
■ Total interest paid for the home equity loan: $22,619.28