Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A home equity loan is a second mortgage with a fixed rate and a fixed payment. Borrowing $75,000 at 8.25 percent over 15 years costs about $728 a month and about $55,969 in interest. The combined loan-to-value, which adds the new loan to the first mortgage, is 65 percent here. Lenders look at that combined ratio, and staying well below the limit protects you if prices fall. The house secures the loan, so missing payments puts it at risk.
Before you rely on it
What to check
Compare the fixed payment with your budget under stress. The loan is secured by your home, and the payment is due whatever happens to your income.
The common error
Where people go wrong with home equity loan calculator
Borrowing against the home for spending that leaves nothing behind. Interest on a loan for a vacation is a cost against an asset that is your shelter.
Sensitivity evidence
How annual interest rate changes the monthly home-equity payment
| Annual interest rate | Monthly home-equity payment | Total interest | Combined loan-to-value |
|---|---|---|---|
| 4.3% | $564 | $26,558 | 65.0% |
| 6.3% | $643 | $40,752 | 65.0% |
| 8.3%worked example | $728 | $55,969 | 65.0% |
| 10.3% | $817 | $72,143 | 65.0% |
| 12.3% | $912 | $89,200 | 65.0% |
Every input, tested
Which input moves the monthly home-equity payment most
| Input | Tested from | To | Monthly home-equity payment at each end | Swing |
|---|---|---|---|---|
| Loan term | 11.0 years | 19.0 years | $866 to $652 | $214 (29%) |
| Annual interest rate | 6.3% | 10.3% | $643 to $817 | $174 (24%) |
| Home-equity loan amount | $67,500 | $82,500 | $655 to $800 | $146 (20%) |
| First-mortgage balance | $225,000 | $275,000 | $728 to $728 | none |
| Property value | $450,000 | $550,000 | $728 to $728 | none |
Two variables at once
Monthly home-equity payment by annual interest rate and home-equity loan amount
| Annual interest rate \ Home-equity loan amount | $60,000 | $75,000 | $90,000 |
|---|---|---|---|
| 4.3% | $451 | $564 | $677 |
| 6.3% | $514 | $643 | $772 |
| 8.3% | $582 | $728 | $873 |
| 10.3% | $654 | $817 | $981 |
| 12.3% | $730 | $912 | $1,095 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Home-equity loan amount | $75,000 |
| Annual interest rate | 8.3% |
| Loan term | 15.0 years |
| First-mortgage balance | $250,000 |
| Property value | $500,000 |
| Monthly home-equity payment | $728 |
| Total interest | $55,969 |
| Combined loan-to-value | 65.0% |
Where the inputs come from
The loan amount is what you want to borrow, and the rate is the fixed rate the lender quotes for a second-lien loan, which is higher than first-mortgage rates. Enter the first-mortgage balance and the property value to compute combined loan-to-value, which most lenders cap at 80% to 85%. Fees such as appraisal and closing costs are additional.
Using the monthly home-equity payment in a real decision
Compare with a HELOC if you need flexible draws.
When the result stops applying
Interest may be deductible only if the loan is used to buy, build or substantially improve the home. Your home secures the loan, so missed payments can lead to foreclosure. Lenders look at credit and debt-to-income as well as equity. Second liens rank behind the first mortgage, which is why their rates are higher.
What to compare it with
Compare the fixed-rate loan with a HELOC using the comparison calculator, and with a cash-out refinance if you also want to change your first mortgage. Use the loan for a purpose with a payoff plan, and keep the combined LTV comfortable. Ask lenders about fees and whether they waive them. Because the home secures the loan, borrow only what the budget supports even if you qualify for more.
People also ask
Frequently asked questions
What is the difference between a home equity loan and a HELOC?
A loan gives a lump sum at a fixed rate and payment. A HELOC is a revolving line, usually with a variable rate.
How much can I borrow against my home?
Most lenders allow combined loans, meaning the first mortgage plus the new one, up to 80% to 85% of the home's value. Subtract what you owe on the first mortgage from that cap to see the most you could borrow.
Are there closing costs?
Often yes, typically an appraisal, title work and lender fees, though some lenders waive or credit them. Whatever is charged is part of the real cost of the loan.