1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. Equity is the difference between your home's current market value and the outstanding balance of all liens (like mortgages) on the property.

2. How Does the Calculator Work?

The calculator uses the home equity loan formula:

Where:

• \( \text{Home Value} \) — Current market value of your property
• \( \text{LTV} \) — Loan-to-Value ratio (typically 80-85% for home equity loans)
• \( \text{Mortgage Balance} \) — Remaining balance on your primary mortgage

Explanation: The formula calculates how much you can borrow based on your home's value and existing mortgage, while respecting lender LTV limits.

3. Importance of LTV Ratio

Details: Lenders typically cap LTV at 80-85% for home equity loans. A lower LTV means less risk for the lender and often better interest rates for you.

4. Using the Calculator

Tips: For accurate results, use current home valuation (consider professional appraisal). Standard LTV is 0.8 (80%) but can vary by lender.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loan and HELOC?
A: A home equity loan provides a lump sum with fixed payments, while a HELOC is a revolving credit line with variable rates.

Q2: How is home value determined?
A: Lenders typically require an appraisal, though some may accept tax assessments or automated valuation models.

Q3: What's a good LTV ratio?
A: Below 80% is generally best, as it avoids PMI and gets better rates. Some lenders go up to 90-95% for well-qualified borrowers.

Q4: Can I borrow more than my home's equity?
A: No, lenders won't approve loans that exceed your available equity based on their LTV limits.

Q5: How does this differ from cash-out refinance?
A: Cash-out refinance replaces your existing mortgage with a larger one, while a home equity loan is a second mortgage.