Home Line of Equity Calculator

Home Line of Equity Calculator

Understanding Your Home Line of Equity

Home equity represents the portion of your home that you truly own. It's the difference between your home's current market value and the amount you still owe on your mortgage(s). As you pay down your mortgage and as your home's value appreciates, your equity grows. This equity can be a valuable financial asset, potentially allowing you to borrow funds through a Home Equity Line of Credit (HELOC) or a Home Equity Loan (HEL).

What is Home Equity?

Simply put, home equity is calculated by subtracting your outstanding mortgage balance from your home's current market value. For example, if your home is valued at $400,000 and you owe $150,000 on your mortgage, your home equity is $250,000. This equity is not liquid cash, but it represents your ownership stake in the property.

How Does a Home Equity Line of Credit (HELOC) or Loan (HEL) Work?

Lenders allow you to borrow against a portion of your home equity. The amount you can borrow is typically determined by a "Loan-to-Value" (LTV) ratio. This ratio represents the maximum percentage of your home's value that a lender is willing to finance, including your existing mortgage and the new home equity loan/line of credit. Common LTV limits are 80% or 90%.

For instance, if your home is worth $500,000 and a lender has an 80% LTV limit, they will consider lending up to $400,000 (80% of $500,000) against your home. If you still owe $200,000 on your primary mortgage, the maximum borrowable equity would be $200,000 ($400,000 – $200,000).

Using the Home Line of Equity Calculator

Our calculator helps you quickly determine your total home equity and the maximum amount you might be able to borrow against it, based on a typical lender's Loan-to-Value (LTV) percentage. Here's what each input means:

• Current Home Value: This is an estimate of what your home would sell for in today's market. You can get this from a recent appraisal, a real estate agent's comparative market analysis (CMA), or online valuation tools.
• Outstanding Mortgage Balance: This is the remaining principal balance on your primary mortgage. You can find this on your latest mortgage statement.
• Maximum Loan-to-Value (LTV) Percentage: This is the percentage of your home's value that a lender is willing to allow as total debt (including your existing mortgage and the new equity loan/line). It's typically set by the lender and often ranges from 75% to 90%.

Example Calculation:

Let's say:

• Your Current Home Value is $500,000
• Your Outstanding Mortgage Balance is $200,000
• The Maximum Loan-to-Value (LTV) Percentage is 80%

First, your Total Home Equity is: $500,000 (Home Value) – $200,000 (Mortgage Balance) = $300,000.

Next, to find your Maximum Borrowable Equity:

1. Calculate the maximum allowed debt based on LTV: $500,000 * 80% = $400,000
2. Subtract your outstanding mortgage balance from this amount: $400,000 – $200,000 = $200,000

So, in this scenario, you have $300,000 in total equity, and you could potentially borrow up to $200,000 through a HELOC or HEL.

Factors Affecting Your Equity and Borrowing Capacity

• Market Conditions: A strong housing market can increase your home's value, boosting your equity. A downturn can decrease it.
• Mortgage Payments: Each principal payment you make directly increases your equity.
• Home Improvements: Significant renovations can increase your home's value, thereby increasing your equity.
• Lender Policies: Different lenders may offer different LTV ratios and have varying credit requirements.
• Second Mortgages/Liens: If you have other loans secured by your home, these will reduce your available equity for a new HELOC or HEL.

Understanding your home equity is a crucial step in making informed financial decisions about your property. Use this calculator to get a clear picture of your potential borrowing power.