1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. Equity represents the portion of the home you truly own - the difference between the home's market value and the outstanding mortgage balance.

2. How Does the Calculator Work?

The calculator uses the home equity loan formula:

Where:

• \( L \) — Maximum borrowable amount (currency)
• \( V \) — Current home value (currency)
• \( LTV \) — Loan-to-value ratio (decimal, typically 0.8 or 80%)
• \( B \) — Current mortgage balance (currency)

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

3. Importance of Home Equity Calculation

Details: Understanding your available home equity helps in financial planning for major expenses like home improvements, education costs, or debt consolidation while using your property as collateral.

4. Using the Calculator

Tips: Enter your home's current market value, the desired loan-to-value ratio (typically 0.8 for 80%), and your current mortgage balance. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical LTV ratio for home equity loans?
A: Most lenders allow up to 80-85% LTV, meaning you can borrow up to 80-85% of your home's value minus your existing mortgage balance.

Q2: How is home value determined for equity calculations?
A: Lenders typically use appraised value rather than market value, which may require a professional appraisal of your property.

Q3: 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 works like a credit card with variable rates and flexible borrowing.

Q4: Are there costs associated with home equity loans?
A: Yes, there may be closing costs, appraisal fees, and other charges similar to a primary mortgage.

Q5: What happens if I can't repay the home equity loan?
A: Since your home serves as collateral, defaulting could lead to foreclosure, so borrow responsibly.