This calculator will show you how consolidating high interest debt into one lower interest home equity loan can reduce your monthly payments.
Enter the principal balance, interest rate & monthly payment amount for each debt you would like repaid. This calculator will then automatically tell you how many monthly payments you have remaining at that payment level along with the total anticipated interest you'll pay throughout the remainder of that loan.
Once you are done entering each individual debt, enter the terms of the home equity loan you wish to obtain. Include the rate of interest, any additional equity you would like to withdraw as a cash payment, the closing costs associated with the loan and the length of the loan term.
The results will compare your new home equity loan payments to the monthly cost of the old debts, the effective interest rate, and the total monthly payment on those debts.
If you are not consolidating old debts into your home equity loan, just enter zeros in the top row of the calculator then enter your equity loan information just above the calculate button.
Homeowners tap home equity for a wide variety of reasons. Some of the most common uses are:
Other less common uses include funding other investments, business expenses, medical bills & emergencies, and vacations.
|Type of Use||Loan||Line|
The ratio of the amount borrowed to the value of the home is called loan-to-value or LTV. Lenders will typically allow homeowners to borrow anywhere from 70% to 85% of the value in their home. Each lender sets their own max LTV ratio.
If your home is worth $200,000 and your first mortgage has a balance of $110,000 then the amount due on that mortgage is 55% of the home's value. This would mean that if a lender has a max LTV of 80% a borrower could borrow up to an additional 25% of the value of the home ($50,000) via either a home equity loan or a home equity line of credit.
Where home price trends are strong and the borrower has an excellent credit rating some lenders may allow borrowers to access up to 90% of a home's value.
The three primary things banks look at when assessing qualification for a home equity loan are:
Home equity loans typically have a closing cost ranging between 2% and 5% of the amount borrowed. This would mean that if you borrowed $50,000 you might expect to pay $1,000 to $2,500 in closing costs.
Total closing costs on a home equity loan are typically significantly lower than closing costs on either a home purchase or a mortgage refinance, in large part because you are only borrowing a limited fraction of the home's value.
Some lenders advertise loans with no closing costs, but they offset this lack of upfront fee by charging a higher interest rate on the loan.
Points are a way of buying access to a lower interest rate. One point typically costs1% of the amount of the loan. If you borrowed $100,000 then buying 1 point would add $1,000 to your loan, while your loan would cost a slightly lower interest rate. Typically each point lowers the interest rate on the loan by 1/8 of a percent.
If you believe you will pay your loan off quickly then it does not make sense to buy points, as you are paying for the priviledge of locking in the loan for say 10 or 15 years & the upfront premium you pay to access a lower rate does not make financial sense if you were going to pay the loan off early into the loan term.
Home equity loans are just like a traditional conforming fixed-rate mortgage. They require a set monthly payments for a fixed period of time where a borrower is lent a set amount of money upfront and then pays back a specific amount each month for the remainder of the loan. Equity loans typically charge a slightly higher initial rate than HELOC do, but they are fixed loans rather than adjustable loans. If you are replacing your roof and fixing your plumbing and know exactly what they will cost upfront, then a home equity loan is likely a good fit.
Home equity loans are typically available in fixed-rate formats whereas HELOCs typically charge adjustable rates.
Generally during periods with low interest rates most homeowners choose fixed-rate loans. If you know you will pay your loan off quickly - before rates reset - then it may make sense to choose an adjustable rate option.
On fixed-rate loans lenders typically charge a higher interest rate for longer duration loans. For example, a lender might charge 5.09% for a 10-year fixed rate loan, or 5.75% for a 15-year fixed rate loan.
HELOCs typically charge little to no closing costs. HELOCs offer greater flexibility, like the ability to pay interest-only for a 5 to 10 year draw window, and then switch to a regular amortizing or balloon payment. When you have a HELOC you may be charged a small nominal annual fee - say $50 to $100 - to keep the line open, but you do not accrue interest until you draw on the line.
HELOCs are better for people who are paying their child's college expenses each year and other types of staggered periodic expenses. Be aware HELOC rates are variable and change as the Federal Reserve adjusts the Fed Funds rate, so monthly costs may jump significantly if you shift from interest-only to amortizing payments around the same time the Federal Reserve does a significant rate hike.
HELOCs are better for people who need to borrow various amounts of money periodically, whereas home equity loans are better for people who intend to borrow one known sum of money once for a known fixed amount of time.
|Loan Type||Home Equity Loans||HELOC||Cash Out Refi|
|Interest Rate||Fixed||Adjustible (in most cases)||Fixed|
|Draw Money||Lump Sum||As needed, througout draw period||Lump Sum|
|Tax Deductible Interest||No||No||Yes|
|Interest Only Payment||No||Yes||No|
|Interest On||Loan Amount||Amount Drawn||Loan Amount|
Some banks offer hybrid products where borrowers do not owe until they draw on the line, but then structure the loan to be fully amortizing. When borrowing large sums of money many borrowers choose cash out refi rather than a home equity loan.
Before the 2018 tax bill passed homeowners could deduct the interest expenses on up to $100,000 of debt from home equity loans & HELOCs, but interest on these loans is no longer tax deductible unless it is obtained to build or substantially improve the homeowner's dwelling.
If you are planning on taking a large amount of equity out of your home it may make more sense to refinance your first mortgage, as first mortgages & mortgage refinance loans still qualify for the interest deduction on up to $750,000 of mortgage debt.
Homeowners who had up to $1 million in mortgage debt before the new tax law was passed will still retain the old limit even if they refinance their homes.