Home Equity Loan Calculator: How to calculate your home equity loan amount?

There are many websites and brands that present their own online home equity loan calculator. But, this article lets you know how you yourself can calculate the amount of your home equity loan along with the pros and cons of getting a home equity loan. But first, we must go through the definition of a home equity loan.

Home equity loan calculator – What is a home equity loan?

It’s a type of loan in which you borrow a lump sum of money, and for that, you tap the equity in your home while using your home as collateral to secure the loan. 

How to calculate home equity loan?

First, you need to find your loan-to-value ratio (LTV) because it will determine how much you may be able to borrow with a home equity loan. To find your LTV, you need to divide your mortgage’s outstanding balance by the current home value. Your equity becomes low when your LTV is high. What it can mean that is the lenders will be reluctant to let you borrow against it.

Though it depends on your financial history, typically, it’s an LTV of 80% or less that the lenders want to see. So, it means that your home equity is 20% or more. It’s up to 80% of your home’s value that you can borrow in total in most cases. So, in order to take advantage of a home equity loan, you may need more than 20% equity.

Home Equity Loan Calculator: Explained with the help of an example

Suppose that your home is worth $200,000 and it’s $100,000 that you still owe. In this example, you get 0.50 from dividing 100,000 by 200,000. It means that in this case your LTV is 50% and you have an equity of 50%. 

What are the Pros and Cons of a Home Equity Loan?

Now that you know how a home equity loan calculator works, you must know what the advantages and disadvantages of a home equity loan are before you apply it.

• Pros

• Fixed repayment terms

The repayment terms for home equity loans are typically fixed, that is usually 5 to 30 years. There are also fixed monthly payments. It means that you exactly know when your loan will be paid off and also, how much you’ll have to pay each month. 

• Low-interest rates

As compared to personal loans, home equity loans typically have lower interest rates. It’s because the home equity loans are secured forms of credit.

• No restrictions on how you can use the money

You can use the money of this loan wherever you need such as home renovations or a dream vacation.

• Cons

• Home as collateral

You could lose your home if you default on your plan. Because it’s your house that secures your home equity loan. This way, the lender could foreclose on your home.

• Closing costs and fees

The closing costs and fees of a home equity loan are similar to that of a home mortgage. Even if you’re allowed to roll these added fees into the loan, these will likely add to the overall loan cost.