What is a home equity loan?

A home equity loan — often called a second mortgage or a fixed-rate equity loan — lets you borrow a lump sum of cash using the equity in your home as collateral. You receive the money up front and repay it in equal monthly installments over a set term, typically somewhere between 5 and 30 years, at an interest rate that is usually fixed for the life of the loan.

Your home equity is the portion of the property you actually own. It is the difference between what the home is worth and what you still owe on it:

Home equity = home value − mortgage balance

If a home is worth $500,000 and the remaining mortgage balance is $300,000, the owner has $200,000 of equity. Most lenders will not allow you to borrow against all of it. They look at the combined loan-to-value ratio (CLTV) — the total of every loan secured by the property divided by its value — and commonly cap it at 80% or 85%.

Because a home equity loan is secured by real estate, its interest rate is often lower than what an unsecured personal loan or a credit card would charge. The trade-off is that the home itself backs the debt, so missed payments put the property at risk.

How the calculator works

This calculator combines three connected sets of numbers so you can judge whether a home equity loan fits your budget and your equity position.

1. Your equity position

It subtracts your remaining mortgage balance from your home value to show your current equity, then adds the new loan to your existing mortgage to work out the combined loan-to-value ratio and the equity you would have left afterward.

CLTV = (mortgage balance + home equity loan) ÷ home value × 100

2. Your monthly payment

The monthly payment is calculated with the standard amortizing loan formula, which spreads principal and interest evenly across every payment:

M = P × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]

In this formula, P is the loan amount, r is the annual interest rate divided by 12 (the monthly rate), and n is the total number of monthly payments (years × 12). Early payments are mostly interest; later payments are mostly principal.

3. The full cost of the loan

Total interest is the sum of every interest charge across the life of the loan. The total of payments is the loan amount plus that interest. The amortization schedule shows both figures broken down year by year — or month by month — so you can see exactly how the balance falls over time.

How to use this calculator

1. Enter your home value. Use a realistic current market value. A recent appraisal or a reliable online estimate is a good starting point.
2. Enter your remaining mortgage balance. This is what you still owe on the first mortgage, not the original loan amount. If the home is paid off, enter 0.
3. Enter the home equity loan amount. Start with the figure you have in mind, then adjust it to see how the monthly payment and combined loan-to-value change.
4. Enter the interest rate. Use the APR quoted by your lender. Even a small change in rate has a large effect on total interest over a long term.
5. Choose a loan term. Shorter terms mean higher monthly payments but far less interest overall. Longer terms lower the payment and raise the total cost.
6. Set the first payment month (optional). This dates the amortization schedule and estimates your payoff date.
7. Select Calculate. Results appear instantly, and you can switch the amortization table between an annual and a monthly view.

Understanding your results

• Monthly payment — the principal and interest portion of each payment. Property taxes, homeowners insurance, HOA dues and any lender fees are not included.
• Home equity loan amount — the principal you are borrowing, which is also the amount the interest is calculated on.
• Total interest paid — every dollar of interest across the full term. This is the clearest measure of what the loan actually costs.
• Total of payments — principal plus total interest, in other words everything you will hand over before the loan is retired.
• Estimated payoff date — the month of your final scheduled payment, based on the first payment month you entered.
• Equity snapshot — your current equity, the combined loan-to-value ratio after adding this loan, the equity remaining, and how much borrowing room you would have left if a lender capped combined loan-to-value at 85%.
• Amortization schedule — a year-by-year or month-by-month breakdown showing how each payment splits between principal and interest and how the balance declines.

Important considerations

• Interest rate. Rates on home equity loans depend on your credit score, the loan-to-value ratio, the loan amount and the term. A one-point difference in rate can add thousands of dollars of interest over a 15-year loan.
• Loan term. Stretching a loan from 10 to 20 years can nearly halve the monthly payment while roughly doubling the interest you pay. Compare both figures before deciding.
• Existing mortgage balance. The larger your first mortgage relative to the home value, the less room there is for a second loan.
• Available equity and CLTV. Many lenders cap combined loan-to-value at 80%–85%. Exceeding that range usually means a smaller loan, a higher rate, or a declined application.
• Total borrowing cost. Look past the monthly payment. Total interest and the total of payments show the real cost of the money you are borrowing.
• Fees and lender conditions. Closing costs, origination fees, appraisal fees and prepayment penalties vary by lender and are not included in these results. Ask for a full Loan Estimate before committing.
• Risk to your home. A home equity loan is secured by your property. If your income or home value falls, the loan still has to be repaid.
• Alternatives. A HELOC offers a flexible draw period with variable rates, while a cash-out refinance replaces your first mortgage entirely. Each has a different cost structure.