How it works
A home equity loan lets you convert part of the value you've built up in your property into cash, borrowed as a single lump sum with a fixed interest rate and a fixed repayment schedule. Because the loan sits behind your existing first mortgage, it's commonly called a second mortgage — your original loan keeps its priority, and the new loan is secured by the same property as collateral.
The calculator answers two linked questions. First, it determines the maximum amount a lender would extend against your equity, governed by a loan-to-value ceiling. Second, it computes the fixed monthly payment on the specific lump sum you actually borrow, using your annual percentage rate and repayment term. The two calculations are sequential: you need the borrowing-cap figure before you can size a payment.
A key distinction: a home equity loan is not a HELOC. The loan delivers one upfront disbursement and amortizes on a set schedule — every month, the same payment amount, for the entire term. A HELOC, by contrast, works like a revolving credit card with a draw period and, typically, a variable rate.
The formula
Available Equity = Home Value × (Max LTV / 100) − Mortgage Balance
Monthly Payment = P × [ r(1 + r)^n ] / [ (1 + r)^n − 1 ]
Where P is the loan principal you choose to borrow, r is the monthly interest rate (annual APR divided by 12), and n is the total number of monthly payments (term in years × 12).
Worked example
You're planning a kitchen renovation and want to borrow a $50,000 lump sum against your home. You've built up $120,000 in equity. The loan carries a fixed 10-year term at 8.1% APR.
Step 1 — Verify the available equity.
Your lender allows a maximum combined loan-to-value of 85%. Say your home is worth $400,000 and your current mortgage balance is $220,000.
| Input | Value |
|---|---|
| Home value | $400,000 |
| Max LTV | 85% |
| Max total borrowing | $400,000 × 0.85 = $340,000 |
| Current mortgage | $220,000 |
| Available equity | $340,000 − $220,000 = $120,000 |
Your $120,000 of available equity comfortably covers the $50,000 you want to borrow.
Step 2 — Calculate the monthly payment.
- Loan principal (P): $50,000
- Annual rate: 8.1%, so monthly rate (r): 0.081 ÷ 12 = 0.00675
- Term: 10 years, so total payments (n): 10 × 12 = 120
Plugging in:
Payment = 50,000 × [0.00675 × (1.00675)^120] / [(1.00675)^120 − 1]
(1.00675)^120 ≈ 2.2486
Payment = 50,000 × [0.00675 × 2.2486] / [2.2486 − 1]
Payment = 50,000 × 0.015178 / 1.2486
Payment ≈ $607.68 per month
Over 120 months you'll pay roughly $72,922 in total — about $22,922 in interest on top of the $50,000 principal.
Things to watch
This is a second loan against an asset you already own. If you fall behind on payments, the lender can foreclose on your home — the risk is real, not theoretical. Keep two practical points in mind:
First, the monthly payment shown here is in addition to your existing first mortgage payment, property taxes, and insurance. Lenders typically require that your total monthly housing costs stay under a set percentage of gross income (often around 43% for the back-end debt-to-income ratio).
Second, the max LTV figure is a ceiling, not a recommendation. Borrowing the full available equity leaves no buffer against falling home prices — if values drop, you could owe more than the home is worth, making refinancing or selling difficult.
This calculator provides an estimate for planning purposes only and is not professional financial advice or a loan offer. Actual terms depend on your lender, credit profile, income verification, and prevailing market rates.