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If you are one of the fortunate people who own their home, it's beneficial to understand what home equity is and how to tap into it.

Our home equity calculator is a great tool to help you figure out the available equity in your property. Knowing this can be helpful if you decide to refinance or even if you want to do some renovations.

Below, we've answered everything you need to know about home equity. If you like our site, please share it on your favorite social network.


What can a home equity loan calculator do?

A home equity loan calculator can help answer some questions when you're thinking of obtaining a home equity loan or a home equity line of credit (HELOC).

When you take out a loan or a line of credit you are actually borrowing against your ownership in the property. This tool estimates how much money a lender is likely to loan you.

The calculator will help you decide if have enough equity in your home to meet your financing needs. It also illustrates how your appraised value impacts your loan eligibility.

What is home equity?

Home equity takes into account how much of your mortgage you've already paid down. Every time you make a mortgage payment and when your home value appreciates, your equity increases too.

Once you've built up enough home equity, you can borrow against it for a loan or line of credit.

The home equity loan calculator is a great tool to determine how much of your property you own and whether or not it's worth it to take out a loan or line of credit.

Lenders also use this information to ensure you have enough equity and that your loan-to-value ratio (LTV) is reasonable.

How does the calculator work?

The calculator subtracts the balance of your mortgage from the total credit balance you may qualify for.

You can set different loan-to-value ratios (or LTVs) to see how it affects the amount a lender could end up giving you.

Don't forget that your credit history, employment, and income will also be taken into account before anyone decides to give you a loan.

What's the maximum amount someone can qualify for?

Depending on how healthy your credit is, a lender may want to see your LTV at less than 80%, but in some cases they may go up to 95%.

You must meet certain requirements before you're approved for a home equity line of credit (HELOC). And it depends on whether you want a HELOC or a home equity loan because they are distinctly different.

Qualification Criteria

Most people qualify for a home equity loan or HELOC if they have a history of paying their bills on time and their credit score is at least 620.

You must also have a professional home appraisal done, and have at least 20% equity in the property.

Lastly, depending on which lender you choose, your debt-to-income ratio must be between 36% and 50%.


To give you a better idea of the concept, let's assume the market value of your home comes in at $500,000. If you have a mortgage balance of $225,000 the equity in your home works out to $275,000. (500,000 - 225,000 = 275,000)

= $225,000 (the mortgage balance) / $500,000 (value of the home) x 100

= 0.45 x 100

= 45%

That means you are currently sitting at 45% LTV.

Lenders who allow a loan-to-value ratio up to 75% would most likely lend you between $35,000 and $150,000. However, it also varies depending on which state you live in.

= 500,000 / 0.75 - 225,000

= 375,000 - 225,000

= 150,000

Is it better to get a home equity loan or refinance?

Determining whether or not to get a home equity loan or refinance is a big decision. Your choice depends on a few factors like how much you want to borrow and when you plan to repay the money.

It also depends on whether you prefer a fixed or flexible term and what the interest rate on your current mortgage is.

Home Equity Line of Credit

Most HELOCs come with an adjustable rate and offer interest-only payments for a specific period of time. They often come with 25 year terms, including a 10-year period where you have access to withdraw funds from whenever you need to.

After the 10 years have passed, the outstanding balance must be repaid in full. Most lenders offer a repayment period of 15 years.

HELOCs work well for those who are looking to borrow sums of $100,000 or less and who plan to pay it off in full within three to five years. However, beware that it can become tempting to keep borrowing from the account just because it's there.


Refinancing is great since you can use the money to remodel, renovate, and even build on to your home. You can also use it to pay off your debts, boost your retirement fund, or pay for your kid's college tuition.

Before you consider refinancing, make sure you're getting a good rate and leaving a minimum amount of 15% to 20% of the equity in your home.

Also, keep in mind that not all of your goals for the cash are fully tax deductible. Talk to your accountant before you choose to refinance.

Are there closing costs on a home equity loan?

Yes, it's essential not to forget that there are closing costs associated with a home equity loan. The costs and fees vary by lender. In certain situations, lenders may offer loans with little to no origination fees.

In addition, some lenders will allow you to roll your closing costs into the loan amount. This would mean you wouldn't have to pay these additional expenses upfront.

Can a home equity loan be used to buy a house?

Yes, it is possible. Mortgage interest rates tend to be higher when you want to buy a second home. That's why many people choose to use their home equity loan to pay for a second home.

It's usually less expensive and also a quicker process. You may avoid certain costs commonly associated with obtaining a mortgage. It's just a question of how much equity you can pull from your current property, and if its enough to purchase another.

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