Choosing a Home Equity Loan - Which Option is Best for You?
A home equity loan is a special type of mortgage, which allows you to tap into your home’s value to take out cash. There are many reasons to take out a home equity loan, including debt consolidation, home improvements, or paying for college.
Bills.com's Choosing a Home Equity Loan Calculator helps you decide which is the best method to take out the funds you need. It factors in when you need the money and how you can repay the loan with the most affordable and cost-effective payment plan.
Before choosing a home equity loan, take the preliminary steps of figuring out how much home equity you have, and how large a loan you can take.
How Much Home Equity Do You Have:
When you financed your home purchase, you made a down payment and then took a mortgage to buy the home. Your down payment represents the amount of equity you have. However, some events occurred since you purchased your home. Firstly, you paid off part of your mortgage. Secondly, home prices changed, sometimes up and other times down. To calculate your current home equity, you need to know your current home’s value and the balance of your mortgage(s).
Here is a simple example. If your home is worth $400,000 and your current mortgage balance is $320,000, then you have $80,000 in equity. Can you take out a Home Equity Loan for $80,000? The answer is most likely, No, but in some circumstances possibly yes.
Home Equity - How Much Can You Take Out
How large of a home equity loan can you take? That would depend on your Loan to Value ratio, and lenders’ rules and guidelines. Your LTV is easy to calculate. Using the previous example, your LTV is 80%: $320,000 / $400,000.
In general, lenders allow for a combined LTV (CLTV) of about 80%. It is essential that you align your cash needs with the amount of money that lenders will offer.
Home Equity Loan Calculator - Choosing an Home Equity Loan Option
Is a HEL your best option? Use the Bills.com calculator to see if a HEL, HELOC, or Cash-out Refinance best fits your situation.