Home Equity Loan Calculator

Home equity loan guide

What a home equity loan is and how it works

A home equity loan is a fixed rate second mortgage. You borrow a lump sum, receive the cash at closing, and repay it with fixed monthly payments over a set term, usually 5 to 30 years. The rate and payment never change. That predictability makes home equity loans simpler to budget than variable rate HELOCs, and useful when you know exactly how much you need.

I built this calculator to show you what a home equity loan costs over time. Use the sections below to understand how these loans work, when they make sense, and how to decide between a home equity loan and a HELOC.

Fixed rate, fixed payment, fixed term

Home equity loans are installment loans. You borrow once, and you repay on a schedule. The rate is locked at closing. Your monthly payment never changes unless you refinance the loan. That stability is the main reason borrowers choose home equity loans over HELOCs.

Rate and payment predictability

When you close a home equity loan, you know the exact payment for the life of the loan. Hypothetical example only: borrow $50,000 at 8.5% over 15 years, and your payment is roughly $492 a month for all 180 months. No surprises. No rate adjustments. You can plan the rest of your budget around that fixed cost.

Compare that to a HELOC, where rates adjust with market conditions and payments can jump when the draw period ends. If predictability matters more than flexibility, a home equity loan is usually the better fit.

Term length tradeoffs

Shorter terms mean higher monthly payments and less total interest. Longer terms mean lower monthly payments and more total interest. On a $50,000 loan at 8.5%, a 10 year term costs about $619 a month. A 20 year term costs about $432 a month. The 10 year loan saves thousands in interest but requires higher monthly cash flow.

Choose the term based on your budget, not only the lowest payment. A 20 year loan that stretches into retirement may not be wise even if the payment fits today.

How much can you borrow

Lenders use combined loan to value (CLTV) to set your borrowing limit. CLTV is your first mortgage balance plus the home equity loan amount, divided by current home value. Most lenders cap CLTV between 80% and 85%, though some go higher for strong credit profiles.

CLTV calculation example

Hypothetical scenario: your home is worth $350,000 and you owe $210,000 on your first mortgage. At 85% CLTV, total debt can reach $297,500. Subtract the $210,000 first mortgage and you can borrow up to $87,500. At 80% CLTV, the limit drops to $70,000.

The lender will also consider your debt to income ratio, credit score, and income stability. A high CLTV is not the only factor. If you recently missed payments or your DTI is already elevated, you may not qualify for the maximum amount.

Appraisal matters

Lenders require an appraisal to confirm current home value. If the appraisal comes in lower than you expected, your borrowing limit drops. If home values have risen since you bought, your equity may be higher than you think. Get a realistic value estimate before you apply so you are not surprised by the loan amount offer.

Common use cases for home equity loans

Home equity loans work well when you need a known amount of cash for a specific purpose and you want stable payments. They are less flexible than HELOCs but easier to budget.

Home renovations

Kitchen remodels, bathroom updates, roof replacement, and other large projects often cost more than most people have in savings. A home equity loan provides the full amount up front with a fixed repayment plan. If the renovation increases home value, you may recover some or all of the cost when you sell.

Debt consolidation

Credit card rates often sit in the high teens or low twenties. Home equity loan rates are usually much lower. Consolidating high interest debt into a fixed rate home equity loan can save money and simplify payments. The risk is that you are converting unsecured debt into debt secured by your house. If you cannot make payments, the lender can foreclose.

Only consolidate debt if you have fixed the behavior that caused it. Otherwise you will end up with new credit card balances and a home equity loan payment you cannot afford.

Major one time expenses

Medical bills, college tuition, or emergency repairs can justify a home equity loan when other funding is not available. The fixed payment makes it easier to plan repayment than a variable rate HELOC or high interest personal loan. Evaluate all options before you secure discretionary spending with your home.

Risks and downsides

Home equity loans are secured by your house. That means lower rates, but it also means foreclosure risk if you default. Understand the risks before you borrow.

Foreclosure risk

If you miss payments on a home equity loan, the lender can foreclose on your home, just like your first mortgage lender. Some states allow second mortgage holders to foreclose even when the first mortgage is current. Do not borrow more than you can comfortably repay, even if the lender approves a higher amount.

Closing costs

Home equity loans involve closing costs. Expect appraisal, title search and insurance, origination or application fees, recording fees, and sometimes attorney fees depending on state. Total costs often run between 2% and 5% of the loan amount. That is real money on a large loan. Some lenders offer no closing cost options by charging a higher rate. Model both scenarios in the calculator above.

Reduced equity

Every dollar you borrow against your home reduces the equity cushion you have. If home values decline or you need to sell unexpectedly, you may not have enough equity to cover both mortgages and selling costs. Keep some equity in reserve rather than borrowing to the maximum allowed CLTV.

Home equity loan versus HELOC

The main difference is structure. A home equity loan is a lump sum with fixed payments. A HELOC is a revolving line with variable rates and a draw period. If you know how much you need and want payment certainty, choose a home equity loan. If you need flexibility and can manage variable payments, choose a HELOC.

Hypothetical comparison: you need money for a renovation. If the contractor provides a fixed bid and you want to lock in the payment, a home equity loan works. If the project will unfold in phases over two years, a HELOC lets you borrow only what you need when you need it. For a full decision framework, read our HELOC versus home equity loan guide.

Tax deduction considerations

Under current federal tax law, interest on home equity loans may be deductible if you use the proceeds to buy, build, or substantially improve the home that secures the loan. If you use the money for other purposes like paying off credit cards or buying a car, the interest is generally not deductible. Rules change and vary by situation. Consult a tax professional before you assume a deduction.

When NOT to use a home equity loan

• You cannot afford the fixed monthly payment on top of your first mortgage and other debts.
• You plan to sell the home within a few years and will not recover the closing costs.
• You are consolidating debt but have not addressed the spending habits that created the debt.
• You need flexibility to borrow and repay multiple times. A HELOC is better for that use case.
• Your income or job stability is uncertain, and you may struggle with payments later.

This guide is general educational information only. It is not financial, tax, or lending advice. Rates, fees, CLTV limits, tax rules, and program requirements change. Confirm figures with a licensed loan officer and a tax advisor before you apply for a home equity loan.