Home Equity Loan Calculator

A home equity loan is a type of loan that uses your home as collateral to secure the debt. It is one of two types of home equity-related financing methods, the other being home equity lines of credit (HELOCs).

Home equity loans are similar to personal loans and mortgages: The lender issues you a lump-sum payment and you repay the loan in fixed monthly installments, at a fixed interest rate. A HELOC operates similarly to a credit card in that you borrow money on an as-needed basis, up to a certain limit, and repay it at a variable interest rate. Both options require you to have a certain amount of home equity ( the portion of the home you own outright) — typically between 15 and 20 percent.

Bankrate’s home equity calculator can help you figure out the size of your home equity stake, which is basically your home’s estimated value minus your outstanding mortgage. 

Estimating your equity helps give you a sense of your overall net worth: Evaluating your home as a financial asset can be useful for estate planning. And of course, it’s crucial to determine if you’re eligible for a home equity loan or HELOC — and, if so, how much you might be able to borrow. Your loan amount can affect your interest rate, so once you know how much money you need, you can start comparing rates from different lenders. This will help you estimate your monthly payment and determine if a home equity loan is within your budget.

Requirements for home equity loans vary depending on the lender and the loan terms. Typically, though, borrowers must meet the following requirements and have:

• A home equity stake of at least 20% though some lenders allow 15%
• A debt-to-income ratio of 43 percent or less 
• A credit score in the mid-600s or higher   
• A loan-to-value ratio of 80 percent or less 
• Proof of steady income

How to apply for a home equity loan

When you’re ready to apply for a home equity loan, here are the steps to follow: 

1. Start by checking your credit score, calculating the amount of equity you have in your home and reviewing your finances.
2. 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 prefer — some only offer home equity loans while others offer just HELOCs.  
3. Fill out a lender application form. When you apply, the lender will ask for personal information such as your name, date of birth and Social Security number. That, along with income, may be all it takes to get a quick quote on a loan rate. If you proceed, you’ll also be asked to submit income documentation, which may include tax returns and pay stubs, and proof of title and homeowners insurance.

Like any financing tool, home equity loans come with pluses and minus.

Building home equity is the first step to obtaining a home equity loan. There are several ways to do this, including: 

• Making a large down payment: 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.
• Renovating your home: Investing in home upgrades or renovations can increase your home’s value, which will also boost your equity. (Keep in mind certain home improvement projects have a stronger return on investment than others.) 
• Making extra payments: 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.

There are multiple reasons to consider tapping your home equity, but some common uses include: 

• Debt consolidation 
• Home improvements 
• Education costs
• Emergency expenses
• Business expenses
• 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 and home equity loans both involve borrowing against your equity and putting your home on the line as collateral, but there are important differences between the two: