A home equity loan (HEL) is a second mortgage that allows you to tap a portion of your home’s value in a lump-sum payment. Home equity loans usually have fixed interest rates and are available in terms of five to 15 years.
Why you might want a home equity loan
Common reasons to take out a home equity loan are:
- Make major improvements to your home.
- Consolidate high-interest rate credit cards.
- Pay for college or fund a startup.
- Buy a rental property.
Use a home equity loan calculator to see what you might qualify for
If you’re considering a home equity loan, a home equity loan calculator may give you an idea of how much you can borrow. You can typically access up to 85% of the value of your home, also known as your loan-to-value ratio (LTV). Some home equity lenders may approve you for a higher LTV, but it’s best to leave some equity in case home values fall or you need to sell your home.
Three pieces of information are needed to use a home equity loan calculator:
- An estimate of your home’s value. An online home value estimator can give you a ballpark idea of your home’s worth. However, home equity lenders usually require a home appraisal to get a precise figure.
- Your outstanding mortgage balance. You should be able to find this on your monthly mortgage statement, or try calling your current mortgage servicer.
- Your credit score. The credit score a lender uses depends on which credit bureau is selected (Equifax, TransUnion and Experian). The three bureaus partnered to create a scoring model called VantageScore, and you can check yours for free through LendingTree.