Home Equity Loan Calculator

What a Home Equity Loan Is

A home equity loan converts part of the value you already own in your home into cash, handed over as a single lump sum and repaid in equal monthly instalments at a fixed rate. Lenders and borrowers often call it a second mortgage, which is the most useful way to think about it: a separate loan, with its own rate, term and payment, sitting behind the mortgage you already have.

Three characteristics follow from that, and between them they explain almost everything else on this page. The rate is fixed, so the payment on the last month is the payment on the first. The money arrives in full on day one, so interest accrues on the entire balance from the start — there is no drawing as you go. And the house is the collateral, which buys a rate unsecured borrowing cannot match and puts the home itself behind the debt.

That combination makes it a straightforward instrument for a known, immediate cost: a roof, an extension, consolidating higher-rate debt into one predictable payment. It makes it a poor fit for a cost you cannot yet size, because you would be paying interest on money sitting idle in your account.

How the Payment Is Worked Out

One formula, the same one behind every fixed-rate mortgage:

What that produces is a payment that never changes and a split that changes every single month. Interest is always charged on the balance still outstanding, so in the first month it is large and very little principal is repaid; by the closing years the same payment is mostly principal. Take the figures this page opens with: the first year retires only a small slice of the balance while interest takes the rest, and the final year reverses that almost completely. Nothing about the payment changed — only the balance it was charged against.

That is the practical case for extra payments. A dollar paid above the required amount goes entirely against principal, and every future month's interest is charged on a smaller balance from then on. It is also why the schedule below is worth more than the headline number: it shows where your money is actually going in the years you are living through, not just where it ends up.

What Each Input Means

• Loan amount — the sum advanced to you. Unlike a line of credit, this is the whole balance from the first day, so borrowing more than you need has an immediate cost rather than an optional one.
• Interest rate — the fixed annual rate. Second-lien loans price above first mortgages, because the lender behind the first one is repaid second if anything goes wrong.
• Loan term — how many years to repay. This is the field with the sharpest trade-off on the page: a longer term lowers the monthly payment and raises total interest, sometimes dramatically. Try the same amount over ten years and over twenty and compare the total interest line.
• Closing costs — appraisal, title, origination and recording charges, entered either as a dollar figure or as a percentage of the amount borrowed.
• Deducted or paid upfront — whether those costs come out of the money advanced to you or are settled separately. Deducted is the more common arrangement and means the cash reaching your account is smaller than the loan you are repaying.

Closing Costs and the APR They Create

The interest rate describes the borrowing. The APR describes the deal, folding the closing costs into the rate so that two offers can be compared on one number. It is calculated the standard way here: the rate at which the money you actually receive equals the stream of payments you actually make.

The gap is larger than people expect on shorter terms, because the same fixed cost is spread over fewer payments. A $150,000 loan at 8% over fifteen years with $7,500 of closing costs carries an APR of about 8.86% — nearly nine-tenths of a point above the quoted rate. Stretch the identical loan over thirty years and the same $7,500 barely moves the APR, because there are twice as many payments to absorb it.

The practical consequence: compare offers on APR, not on the rate, and pay particular attention if you expect to repay early. Closing costs are spent whether you keep the loan for two years or twenty, so repaying a fee-heavy loan quickly makes the effective cost considerably worse than any APR quoted over the full term suggests.

How Much You Can Borrow

Lenders limit the total of everything secured against the property, not just the new loan. The calculation takes the appraised value, applies the limit — 80% is the most common, with 85% and 90% available to stronger applicants and some lenders stopping at 70% — and subtracts the mortgage still owed. Whatever is left is the ceiling.

The second tab runs that for you and, more usefully, shows the same home at every limit at once. That matters because the limit is the variable you can shop for: the same house and the same mortgage can support meaningfully different loans depending on which lender you approach, and the difference between 70% and 90% on a mid-priced home runs to six figures.

Two things the arithmetic cannot tell you. The value in the calculation is the lender's appraisal, not a listing estimate, and a lower appraisal shrinks everything downstream of it. And the ceiling is not an approval — credit history, income stability and debt-to-income ratio decide whether you are offered any of it, with lenders commonly wanting total monthly debt at or under roughly 43% of gross income once the new payment is counted.

What Being a Second Mortgage Means

This is the part borrowers most often skip, and it explains the pricing. Liens are repaid in order. If a property is sold or repossessed, the first mortgage is settled in full before the second lender sees anything, so the second lender carries the risk of a shortfall. That extra risk is priced into the rate, which is why a home equity loan sits above first-mortgage rates even though both are secured on the same house.

Two practical consequences are worth knowing before you sign. Refinancing the first mortgage later usually requires the second lender to agree to stay in second place — a subordination agreement — and that consent is neither automatic nor always free. And if you sell, both loans are repaid out of the proceeds in order, so a sale price that covers the first but not the second still has to be made up from somewhere.

None of this argues against a home equity loan. It argues for keeping some headroom rather than borrowing to the last dollar the limit allows, particularly if a move or a refinance is plausible within a few years.

Choosing Between a Home Equity Loan and a HELOC

Both borrow against the same equity and are secured the same way. The decision is really one question: do you know the amount?

• You know it, and you need it now — a home equity loan. The rate is fixed, the payment is identical every month for the whole term, and there is no later step change to plan around. This is the safer instrument if a rising payment would be genuinely difficult to absorb.
• You do not, or the spending is staged — a line of credit is cheaper in practice, because interest is charged only on what has been drawn rather than on a lump sum sitting in your account. The cost of that flexibility is a variable rate and a payment that steps up when the draw period ends. Our HELOC calculator models that structure specifically.
• The first mortgage rate is above today's market — a cash-out refinance may beat both, since it replaces the whole mortgage rather than adding to it. If the existing rate is below market, refinancing to release equity usually costs far more than the equity is worth.

A reasonable rule of thumb: fixed and known points to this loan, uncertain and staged points to a line of credit, and a cash-out refinance is worth the paperwork mainly when the rate on the entire mortgage improves.

What This Calculator Leaves Out

The arithmetic is exact for what it models. What it models is a simplification, and being clear about that matters more than extra decimal places.

• No property taxes or insurance. Unlike a first-mortgage payment that may be escrowed, the figure here is principal and interest only.
• No extra payments. The schedule assumes exactly the required payment every month. Paying more shortens the term and cuts total interest considerably; the schedule is the baseline you would be improving on.
• Not every fee. The closing-cost field covers what you enter. Lenders sometimes add charges that only appear on the formal disclosure, which is the document to compare rather than any quote.
• No prepayment penalty modelled, and some second-lien loans carry one, or claw back waived closing costs if the loan is repaid within the first few years.
• Your home is the security. This is not a footnote. Debt that was unsecured becomes secured on your home when it is consolidated this way, and a lower rate is not the only thing that changes.

Frequently Asked Questions

What is a home equity loan?

It is a second mortgage: you borrow a fixed sum against the equity in your home, receive it in one payment, and repay it over a set term at a fixed rate. Because the whole amount is advanced on day one, interest starts accruing on all of it immediately. The house secures the debt, which is why the rate is far lower than unsecured borrowing and why falling behind carries much heavier consequences.

How is a home equity loan payment calculated?

With the same amortization formula behind any fixed-rate mortgage or car loan: payment = principal x i / [1 - (1 + i)^-n], where i is the annual rate divided by twelve and n is the number of monthly payments. The payment never changes, but its composition does. Early on most of it is interest; by the final years most of it is principal, which is exactly what the schedule on this page shows.

How much can I borrow with a home equity loan?

Lenders cap the total of all loans secured on the property at a percentage of its value. Take the appraised value, multiply by that limit, and subtract the mortgage still outstanding. On a $600,000 home with a $250,000 mortgage and an 80% limit, that leaves $230,000. The second tab works this out for you and shows the same home at every common limit, since the limit a lender will accept varies more than most borrowers expect.

Should I choose a home equity loan or a HELOC?

It comes down to whether you know the amount. A home equity loan is right when the cost is known and payable now, because the rate is fixed and the payment never moves. A HELOC suits spending that arrives in stages, since interest is charged only on what has been drawn, but the rate is usually variable and the payment can rise. If a rising payment would be difficult to absorb, the fixed option is worth paying for even at a slightly higher starting rate.

What closing costs does a home equity loan have?

Typically appraisal, title search, origination and recording fees, often landing somewhere around 2% to 5% of the amount borrowed, though plenty of lenders discount or waive them. Enter them here as a dollar figure or a percentage and the APR line shows what they really cost you. Waived costs sometimes carry a condition, such as repaying the fees if the loan is closed within the first two or three years.

Does a home equity loan affect my existing mortgage?

It does not change the mortgage itself. The first mortgage keeps its balance, rate and term, and the home equity loan sits behind it as a separate second lien with its own payment. That is the main attraction when the existing mortgage carries a low rate, since a cash-out refinance would replace that rate while a second loan leaves it alone. The trade-off is two payments instead of one, and a higher rate on the second because it ranks behind the first.

Is home equity loan interest tax deductible?

Only in specific circumstances. Under current US rules the interest is generally deductible where the borrowed money is used to buy, build or substantially improve the home that secures the loan, and further limits apply on top of that. Using the money to consolidate credit cards or pay tuition would not usually qualify. This is worth confirming with a tax professional for your own situation rather than assuming either way.

What happens if I sell the house before the loan is paid off?

The loan is settled out of the sale proceeds, after the first mortgage is repaid, because both are secured on the property and neither can simply be left behind. If the sale price does not cover both, the shortfall has to be made up from elsewhere before the sale can complete. This is the practical reason to be careful about borrowing close to the lender's limit if you might move within a few years.

This calculator provides estimates for general informational purposes only and is not financial, lending or tax advice. Results cover principal and interest plus any closing costs you enter; they exclude property taxes, insurance, prepayment penalties and fees a lender may add, and they are neither an offer of credit nor a guarantee of approval. Confirm every figure against your lender's formal disclosure, and consider speaking with a qualified financial professional before borrowing against your home.