This line of credit calculator helps you find out what line of credit you may qualify for by considering your home’s assessed value, mortgage owed and LTV ratio. There is in depth information on how to estimate your eligibility below the form.
How does this line of credit calculator work?
This personal finance tool allows you determine the line of credit you may be eligible for which depends directly on the appraised value of your home, current mortgage you owe and the LTV ratio accepted by your lender.
Before explaining the steps this line of credit calculator performs let first explain a short definition list for the concepts used when dealing with this calculation:
- Your home’s appraised value is the market’s price someone would pay for your property today. It is usually determined by an independent assessor and not by the owner of the house or the lender itself. As property prices tend to increase over time you should expect that your appraised home value should be higher than the price you bought your home years ago.
- Mortgage/s you owe should include any of the current mortgage/s and debts secured by your home because this is a critical aspect which further determines the amount of money you may borrow in the eye of a creditor.
- Loan-to-value ratio often abbreviated as LTV is the percent from your appraised home value that your lender will allow you to borrow money. The most commonly used percentage financial institutions allow is 80%, but please note it can be negotiated or agreed between the debtor and creditor.
The algorithm behind this line of credit calculator applies the steps detailed below. Please note that the results not only contain the line of credit affordability based on the data the user inputs but also 2 extra scenarios that assume your appraised home value raise by 5% or by 10%.
- Scenario 1 that takes account of the user’s data:
a) It is calculated the absolute value of the LTV as Your home’s appraised value * Loan to value ratio/100.
b) Then it is estimated the Credit line you qualify for asabsolute value of the LTV obtained above minus Mortgage/s you owe.
- Scenario 2 that takes account of the user’s data and a raise by 5% of the appraised home value:
a) First we need to calculate the new appraised home value by multiplying user’s home value by 1.05.
b) It is then determined the absolute value of the LTV as Your new home’s appraised value from point a) multiplied by the Loan to value ratio/100.
b) Finally it is estimated the Credit line you qualify in this case as absolute value of the LTV obtained above minus Mortgage/s you owe.
- Scenario 3 that takes account of the user’s data and a raise by 10% of the appraised home value is similar with the 2nd case, the sing lest difference is that the user’s home value gets multiplied by 1.1 in order to figure out the new appraised amount.
Example of a calculation
In case of an individual that has a property assessed to a value of $250,000, a current mortgage balance of $50,000. In case the lender allows a LTV of 80% the following figures will result:
■ Credit line you qualify for $150,000.00.
But let’s take a look at the following 2 scenarios:
■ In case your appraised home value would increase by 5% then:
- Your new appraised home value would be = $262,500.00
- In this case the new line of credit you qualify for would be = $160,000.00
■ OR in case your appraised home value would increase by 10% then:
- Your new appraised home value would be = $275,000.00
- In this case the new line of credit you qualify for would be = $170,000.00
What is a line of credit?
In finance theory, a line of credit defines a credit source extended to a entity (for an individual or a juridical entity) by a lender, bank or other financial institution.
This is a form of a funds source the borrower has at it discretion while the interest is paid only for the principal withdrawn. Please note that in some cases the creditor may ask the debtor to pay an unused line fee, which is an annualized percentage fee on the money not taken.
In regard of the way this financial product is secured it should be mentioned that it can either be secured by collateral or unsecured in case of loan amounts that are insignificant.01 Feb, 2015