Calculate home equity loan payments, available equity and total interest cost. Find out how much you can borrow against your home and compare fixed vs HELOC options.
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A home equity loan is a fixed-rate, lump-sum loan secured against your home equity — the difference between your home value and what you owe on your mortgage. You receive the full amount upfront and repay it in fixed monthly installments over a set term. Unlike a HELOC (line of credit), the rate and payment are fixed for the life of the loan, making it predictable and suitable for large one-time expenses like renovations or debt consolidation.
Most lenders allow you to borrow up to 80-85% of your home value minus what you owe on your mortgage. Formula: (Home Value x Max LTV%) - Mortgage Balance = Maximum Loan. Example: $400,000 home x 80% = $320,000 - $240,000 mortgage = $80,000 maximum equity loan. Some lenders allow up to 90% LTV for well-qualified borrowers. Maintaining at least 20% equity protects you from being underwater if property values fall.
A home equity loan provides a lump sum at a fixed interest rate with fixed monthly payments — predictable and suitable for a specific large expense. A HELOC (Home Equity Line of Credit) is a revolving credit line with a variable rate — you draw what you need, when you need it, during the draw period. HELOCs offer flexibility but carry interest rate risk. Home equity loans suit large one-time expenses; HELOCs suit ongoing or uncertain spending needs.
Interest on a home equity loan may be tax-deductible if the loan proceeds are used to buy, build or substantially improve the home securing the loan. Under the Tax Cuts and Jobs Act 2017, using a home equity loan for debt consolidation, medical expenses or other personal spending makes the interest non-deductible. Consult a tax professional to confirm deductibility based on your specific use of proceeds and tax situation.
The primary risk is that your home is the collateral — if you cannot make payments, the lender can foreclose. Other risks include: reducing your equity cushion (making you vulnerable to negative equity if property values fall), adding a second monthly payment on top of your mortgage, closing costs and fees (typically 2-5% of loan amount), and the temptation to borrow more than needed since equity can feel like free money.
Most lenders require a minimum credit score of 620-680 for a home equity loan, with the best rates reserved for scores above 720. Lenders also evaluate your debt-to-income ratio (typically must be below 43-45%), loan-to-value ratio, employment history and income stability. Home equity loans are generally easier to qualify for than refinancing because the existing equity provides security for the lender.
The home equity loan process typically takes 2-6 weeks from application to funding. Steps include: application and document submission, credit check, home appraisal (1-2 weeks), underwriting review, loan approval, closing (signing documents), and a 3-day right-of-rescission period (for primary residences in the US) before funds are disbursed. Some lenders offer accelerated timelines using automated valuations instead of full appraisals.
A cash-out refinance replaces your entire mortgage with a new, larger loan at current market rates and gives you the difference in cash. A home equity loan is a separate second loan on top of your existing mortgage. If current mortgage rates are lower than your existing rate, cash-out refinance may be better — you improve your primary mortgage rate and access equity simultaneously. If current rates are higher than your existing mortgage, a home equity loan preserves your existing low-rate mortgage while accessing equity.
