Home Equity Loan Calculator

How a home equity loan works

A home equity loan lets you borrow against the value you have already built up in your home. It is a fixed-rate second mortgage: you receive a single lump sum up front, and you repay it in equal monthly installments over a set term at a fixed interest rate. Because it sits behind your existing first mortgage, it is often called a "second mortgage" — your original loan stays exactly as it is, and the home equity loan adds a second lien on the property.

The appeal is predictability. Unlike a variable-rate line of credit, every payment on a home equity loan is the same from the first month to the last, so you always know exactly what you owe. Borrowers commonly use the lump sum for home improvements, debt consolidation, large one-time expenses, or education costs.

How much can you borrow?

Lenders cap your total borrowing using a maximum combined loan-to-value (CLTV) ratio — the sum of every loan secured by the home divided by the home's value. Most lenders allow a CLTV of 80% to 90%. Your maximum new borrowing is figured like this:

Maximum loan = Home value × max CLTV − existing mortgage balance

Separately, your available home equity is simply the home value minus what you still owe — the slice of the property you truly own. Your maximum home equity loan is usually smaller than your total equity, because lenders insist on leaving a cushion of equity untouched.

The payment formula

A home equity loan amortizes exactly like any other fixed-rate loan. For a loan amount P, a monthly rate r (your annual rate divided by 12) and n total monthly payments, the principal and interest payment is:

Payment = P × r × (1 + r)n ÷ ((1 + r)n − 1)

Total interest is the sum of every payment minus the amount you originally borrowed, and total repaid is simply the monthly payment multiplied by the number of months in the term.

A worked example

Take the defaults: a $500,000 home with a $280,000 first mortgage, an 85% CLTV cap, borrowing $40,000 at 7.75% over 15 years:

• Your available home equity is $220,000 ($500,000 − $280,000).
• The most you could borrow at 85% CLTV is $145,000 ($500,000 × 0.85 − $280,000).
• Borrowing $40,000 at 7.75% over 15 years gives a payment of roughly $377/month.
• Because $40,000 is well under the $145,000 cap, the request fits comfortably.

Home equity loan vs HELOC

• Rate type. A home equity loan has a fixed rate; a HELOC is usually variable.
• How you get the money. A home equity loan pays out a single lump sum; a HELOC is a revolving line you draw from as needed.
• Payment. A home equity loan has equal fixed payments from day one; a HELOC payments change with your balance and rate.
• Best for. Choose a home equity loan for a known, one-time cost; choose a HELOC for ongoing or uncertain expenses.

What affects your payment

• Interest rate. A higher fixed rate raises both your monthly payment and your total interest.
• Term. A longer term lowers the monthly payment but increases total interest; a shorter term does the opposite.
• Loan amount. The more you borrow, the larger every payment — borrow only what you need.
• Combined loan-to-value. A lower CLTV cap, or a larger existing mortgage, shrinks how much you can borrow in the first place.

Frequently asked questions

What is the difference between a home equity loan and a HELOC?

A home equity loan gives you a single fixed lump sum at a fixed interest rate, repaid in equal monthly installments — much like a traditional mortgage. A HELOC is a revolving line of credit you draw from as needed, usually at a variable rate, with a draw period followed by a repayment period. If you want a predictable payment, a home equity loan is simpler; if you want flexible access to funds over time, compare with our HELOC calculator.

How is a home equity loan different from a cash-out refinance?

A home equity loan is a second mortgage that sits on top of your existing first mortgage, leaving your original loan and its rate untouched. A cash-out refinance replaces your first mortgage entirely with a new, larger loan. If your current mortgage rate is low, a home equity loan often makes more sense than refinancing. Run the numbers both ways with our cash-out refinance calculator.

How much equity can I borrow?

Lenders limit your total borrowing to a maximum combined loan-to-value (CLTV) ratio — usually 80% to 90% of your home value. Your borrowing limit is roughly your home value times that CLTV percentage, minus the balance you still owe on your first mortgage. For example, at 85% CLTV a $500,000 home with a $280,000 first mortgage could support up to about $145,000 in new borrowing.

Are home equity loan rates fixed?

Yes. The defining feature of a home equity loan is a fixed interest rate and a fixed monthly payment for the entire term, so your payment never changes. That predictability is the main reason borrowers choose a home equity loan over a variable-rate HELOC.

Is the interest on a home equity loan tax deductible?

It can be, but only in limited cases. Under current rules, interest is generally deductible only when the loan proceeds are used to buy, build, or substantially improve the home that secures the loan, and only if you itemize. Interest on money used for other purposes is usually not deductible. Tax rules change and depend on your situation, so consult a tax professional before relying on a deduction.

How long are home equity loan terms?

Terms commonly range from 5 to 30 years, with 10, 15, and 20 years being the most popular choices. A longer term lowers your monthly payment but increases the total interest you pay; a shorter term costs more each month but far less interest overall.

Related tools

Compare a revolving line of credit with our HELOC calculator, weigh replacing your whole mortgage with the cash-out refinance calculator, check a straight rate-and-term refinance with the refinance calculator, or explore tapping equity in retirement with the reverse mortgage calculator.