1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. The loan amount is determined by the home's value, existing mortgage balance, and the lender's maximum loan-to-value ratio.

2. How Does the Calculator Work?

The calculator uses the home equity loan formula:

Where:

• \( \text{Home Value} \) — Current market value of the property (USD)
• \( \text{LTV} \) — Loan-to-Value ratio (decimal between 0 and 1)
• \( \text{Mortgage Balance} \) — Remaining balance on existing mortgage (USD)

Explanation: The equation calculates how much you can borrow based on your home's equity after accounting for the maximum LTV ratio lenders typically allow.

3. Importance of Loan-to-Value Ratio

Details: LTV ratio determines how much of your home's value can be borrowed. Most lenders cap LTV at 80-85% for home equity loans to maintain a buffer against market fluctuations.

4. Using the Calculator

Tips: Enter accurate home value (consider professional appraisal), your current mortgage balance, and the maximum LTV ratio your lender allows. All values must be positive numbers with LTV between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: 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 is a revolving credit line with variable rates.

Q2: What is a good LTV ratio?
A: Most lenders prefer LTV ≤ 80% for the best rates. Above 80% may require PMI (private mortgage insurance).

Q3: How is home value determined?
A: Lenders typically use an appraisal, but you can estimate with recent comparable sales in your area.

Q4: Can I borrow more than my home's value?
A: No, responsible lenders won't allow LTV > 100% as it creates negative equity situations.

Q5: Are there tax benefits to home equity loans?
A: In some countries, interest may be tax-deductible if used for home improvements (consult a tax professional).