Home Equity Loan Calculator

Understanding Home Equity Loans

A home equity loan, often called a "second mortgage," allows you to borrow against the equity in your home. Unlike a HELOC (Home Equity Line of Credit), a home equity loan provides a lump sum payment upfront with a fixed interest rate and fixed monthly payments over a set term.

How Home Equity Loans Work

Loan Amount: Most lenders allow you to borrow up to 80-85% of your home's value, minus what you owe on your first mortgage. For example, if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. At 80% LTV, you could borrow up to $320,000 total ($400,000 × 0.80), meaning you can access up to $70,000 in a home equity loan.

Fixed Rate & Payment: Home equity loans have fixed interest rates, so your monthly payment stays the same for the entire loan term. This predictability makes budgeting easier compared to variable-rate HELOCs.

Loan Terms: Common terms range from 5 to 30 years. Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce your monthly payment but increase the total interest cost.

Home Equity Loan vs. HELOC: Key Differences

Home Equity Loan (Second Mortgage):

• Lump sum payment upfront
• Fixed interest rate
• Fixed monthly payments
• Pay interest on the entire amount from day one
• Best for: One-time expenses like home renovations, debt consolidation, or major purchases

HELOC (Home Equity Line of Credit):

• Revolving credit line (like a credit card)
• Variable interest rate
• Draw period (typically 10 years) then repayment period (typically 10-20 years)
• Pay interest only on what you borrow
• Best for: Ongoing expenses, emergencies, or projects with uncertain costs

Common Uses for Home Equity Loans

• Home improvements: Kitchen remodels, bathroom upgrades, additions, new roof. These improvements can increase your home's value and the interest may be tax-deductible.
• Debt consolidation: Pay off high-interest credit cards, personal loans, or student loans. Home equity rates are typically much lower than credit card rates (7-9% vs. 18-25%).
• Education expenses: College tuition, graduate school. Rates are often better than private student loans.
• Medical bills: Large medical expenses not covered by insurance.
• Business funding: Start or expand a business (though consider SBA loans as an alternative).
• Emergency expenses: Major car repairs, urgent home repairs, unexpected financial needs.

Qualification Requirements

To qualify for a home equity loan, lenders typically require:

• Sufficient equity: At least 15-20% equity in your home (80-85% combined loan-to-value ratio)
• Good credit score: Usually 620 minimum, but 700+ gets you the best rates
• Stable income: Proof of employment and ability to repay
• Low debt-to-income ratio: Typically 43% or less (all monthly debt payments ÷ gross monthly income)
• Home appraisal: Lender will order an appraisal to confirm your home's current value

Interest Rates & Closing Costs

Current rates: As of 2026, home equity loan rates typically range from 6.5% to 9%, depending on your credit score, loan amount, and lender. Rates are usually 0.5-1% higher than first mortgage rates but much lower than credit cards or personal loans.

Closing costs: Expect to pay 2-5% of the loan amount in closing costs, which may include:

• Application fee: $75-$300
• Appraisal fee: $300-$700
• Origination fee: 0.5-1% of loan amount
• Title search and insurance: $700-$1,200
• Attorney fees: $500-$1,000 (in some states)
• Recording fees: $50-$250

Some lenders offer no-closing-cost home equity loans, but you'll typically pay a higher interest rate to compensate.

Tax Deductibility

Under the Tax Cuts and Jobs Act, interest on home equity loans is tax-deductible ONLY if you use the funds to "buy, build, or substantially improve" the home that secures the loan. The deduction is limited to interest on up to $750,000 of total mortgage debt ($375,000 if married filing separately).

Deductible: Using a home equity loan to build an addition, remodel the kitchen, or replace the roof.

NOT deductible: Using the loan for debt consolidation, car purchases, vacations, or college tuition.

Consult a tax professional to understand how this applies to your situation.

Risks to Consider

• Foreclosure risk: Your home is collateral. If you can't make payments, you could lose your home.
• Reduced equity: Taking out a home equity loan reduces your ownership stake and could leave you underwater if home values decline.
• Closing costs: The 2-5% in fees can add thousands to smaller loans, making them less cost-effective.
• Extended debt: A 15-year home equity loan means you're paying for today's expenses for 15 years into the future.
• Resale complications: If you sell your home, you must pay off both mortgages from the sale proceeds.

Alternatives to Home Equity Loans

Cash-out refinance: Replace your existing mortgage with a new, larger one and take the difference in cash. This can make sense if current mortgage rates are lower than your existing rate.

HELOC: If you don't need the full amount upfront or prefer flexibility, a HELOC lets you borrow only what you need when you need it.

Personal loan: Unsecured personal loans don't put your home at risk, but rates are typically higher (10-15% or more).

0% balance transfer credit card: For debt consolidation under $20,000, a 0% intro APR card (12-21 months) can save on interest if you can pay it off during the promo period.