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Home Equity Loan Calculator

Calculate your monthly payments for a fixed-rate home equity loan and see if your desired loan amount falls within typical lender Loan-to-Value limits.

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Understanding Home Equity Loans

A home equity loan (HELOAN), often referred to as a second mortgage, allows you to borrow a lump sum of money against the equity you have built up in your home. Unlike a Home Equity Line of Credit (HELOC) which acts like a credit card, a home equity loan provides fixed monthly payments over a set term.

Loan-to-Value (LTV) Ratio

Most lenders allow you to borrow up to an 80% to 85% combined loan-to-value (CLTV) ratio. This means the sum of your primary mortgage and your new home equity loan cannot exceed 85% of your home's appraised value.

Key Considerations

  • Fixed RatesPayments remain stable over the entire life of the loan.
  • Lump SumFunds are disbursed all at once, making it ideal for large, one-time expenses.

Payment Formula

The monthly payment for a home equity loan is calculated using the standard amortizing loan formula:

M = P [ r(1 + r)^n ] / [ (1 + r)^n - 1 ]

Where:
M = Total monthly payment
P = Principal loan amount
r = Monthly interest rate (annual rate divided by 12)
n = Number of payments (loan term in years multiplied by 12)

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How the calculation works

A home equity loan is a fixed second mortgage. The payment amortizes the amount borrowed.

M = P × [ r(1+r)^n ] / [ (1+r)^n − 1 ] r = annual rate ÷ 12 n = years × 12

M is principal and interest only. Taxes, fees, and insurance are added after this payment.

Worked example: $40,000 at 8% for 10 years

  1. Loan amount P = $40,000.00.
  2. Monthly rate r = 8 ÷ 12 ÷ 100 = 0.006667.
  3. Number of payments n = 10 × 12 = 120.
  4. Monthly principal and interest = $485.31.
  5. Interest over the full term = $18,237.25.

Same loan, different term or rate

CaseMonthly paymentTotal interest
10 years at 8%$485.31$18,237
5 years at 8%$811.06$8,663
10 years at 9%$506.70$20,804

Frequently asked questions

What is the monthly payment on $40,000 at 8% for 10 years?▼
About $485.31. That payment covers principal and interest. Over 10 years the interest is about $18,237.
What does the payment formula use?▼
It uses the loan amount, the monthly interest rate, and the number of monthly payments. The payment stays level, while the share that goes to interest falls over time.
How much interest does a shorter term save at 8%?▼
A 5-year term on the same $40,000 loan costs $811.06 a month and about $8,663 in interest, compared with $18,237 on the 10-year term.