How to calculate a home equity line of credit payment

Use this home equity loan calculator to see if a lender might give you a home equity loan and how much money you might be able to borrow. Home equity refers to how much of the house is actually yours, or how much you’ve “paid off.” Every time you make a mortgage payment, or every time the value of your home rises, your equity increases. As you build equity, you may be able to borrow against it.

How does a home equity loan work?

A home equity loan uses your house as collateral. When considering your application for a home equity loan, lenders need to make sure the home equity actually exists and that you have an appropriate loan-to-value ratio, or LTV. When your LTV is high, it means your equity is low, and lenders will be reluctant to let you borrow against it.

How do you calculate a home equity loan?

To determine how much you may be able to borrow with a home equity loan, divide your mortgage’s outstanding balance by the current home value. This is your LTV. Depending on your financial history, lenders generally want to see an LTV of 80% or less, which means your home equity is 20% or more. In most cases, you can borrow up to 80% of your home’s value in total. So you may need more than 20% equity to take advantage of a home equity loan.

An example: Let’s say your home is worth $200,000 and you still owe $100,000. If you divide 100,000 by 200,000 you get 0.50, which means you have a 50% loan-to-value ratio, and 50% equity. Lenders that allow a combined loan-to-value ratio of 80% may let you borrow another $60,000. That would bring the amount you owe to $160,000, which is 80% of the $200,000 home value.

How to use the home equity loan calculator

1. Enter your home’s value (if you’re not sure, check your most recent appraisal or look up your address online).

2. Enter the amount remaining on the loan (find this on your most recent mortgage statement).

3. Choose the range that reflects your current credit score (if you haven’t checked your credit score in a while, NerdWallet will provide it free).

The tool will immediately calculate your current loan-to-value ratio. If you own at least 20% of your home (an LTV of 80% or less), you’ll probably qualify for a home equity loan, depending on your financial track record.

The calculator will also show the dollar amount you’ll likely be able to borrow so you can determine whether a home equity loan meets your financial needs.

How home equity loan payments are calculated

This calculator tells you how much you may be able to borrow in total, but not what your monthly payments would be.

A home equity loan has equal payments every month. The monthly payments depend on three factors:

• Loan amount. 

• Loan term. The term is the number of years it will take to pay off the loan. For a given amount and interest rate, a longer term will have lower monthly payments, but will charge more total interest over the life of the loan.

• Interest rate. Usually, a longer loan term has a higher interest rate.

How home equity loans and HELOCs differ

Both a home equity loan and a HELOC are ways to cash in on your home’s equity, but they work differently.

A home equity loan gives you all the money at once with a fixed interest rate. HELOCs act more like credit cards; you can borrow what you need as you need it, up to a certain limit. HELOCs have adjustable or variable interest rates, meaning your monthly payment can change, but you pay interest only on the amount you draw.

How to get a home equity loan

You’ll generally be eligible for a home equity loan or HELOC if:

• You have at least 20% equity in your home, as determined by an appraisal.

• Your debt-to-income ratio is between 43% and 50%, depending on the lender.

• Your credit score is at least 620.

• Your credit history shows that you pay your bills on time.

What is the current interest rate on a home equity loan?

Home equity loan rates vary among lenders and according to your financial situation. NerdWallet's home equity loan rate survey provides average interest rates by national and regional home equity lenders.

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Are home equity loans a good idea?

Just because you meet the requirements for a home equity loan or HELOC doesn’t mean it’s a wise choice. Borrowing against your home’s equity is always risky, as the lender can foreclose on your home if you fail to make payments.

Financial experts recommend tapping home equity only when it helps add value to your home, such as repairs or remodeling, but other reasons may include:

• Debt consolidation.

• Financial emergencies.

• Paying for college.

• Protecting your portfolio in retirement.

• An alternative to cash-out refinancing when interest rates are rising.

Before choosing between a home equity loan or HELOC, be sure you understand the total cost versus benefit for you, including interest rates, fees, monthly payments and potential tax deductions.

How do I grow my home's equity?

If you’re sure all the information entered into the home equity loan calculator is correct and it shows you have less than 20% equity in your house, you probably won’t be eligible for a loan or HELOC at this time. You may be able to speed up equity growth by:

• Refinancing into a shorter-term mortgage.

• Making home improvements that increase value.

• Paying a little extra toward your mortgage principal every month.

How do you calculate line of credit payments?

How are monthly payments calculated on a HELOC?

What is the monthly payment on a $50000 HELOC?

How is equity line of credit calculated?