What a home equity loan actually is
A home equity loan, sometimes called a second mortgage, hands you a single lump sum at closing, secured against your home on top of whatever first mortgage is already there. It carries a fixed rate and a fixed monthly schedule from day one, exactly like an ordinary mortgage, just sized against your equity rather than a purchase price: one amount, one rate, one term, one payment that never moves. The Consumer Financial Protection Bureau describes it as well suited to one-time, defined-cost borrowing, a renovation with bids in hand or consolidating a known balance of other debt, rather than borrowing that happens gradually or unpredictably.
How the payment is worked out
One formula, the same one behind any fixed-rate amortising loan, sets the payment:
Take the calculator's own defaults: $60,000 borrowed at 8.5% APR over 15 years, so n is 180 monthly payments and r is roughly 0.708% a month. The formula returns $590.84 a month. Across the full 180 payments that comes to $106,351.87 paid in total, $46,351.87 of it interest on top of the $60,000 borrowed. The rate and term you enter should come from a real offer or statement rather than an advertised teaser figure, since the payment above is exactly what that rate and term produce, nothing more forgiving.
Checking it against your combined loan-to-value
Lenders do not size a home equity loan against your home's value alone; they size it against everything already secured on the property plus the new request, a figure called combined loan-to-value, or CLTV.
On the calculator's own defaults, a $400,000 home with a $250,000 first mortgage and a $60,000 request gives $310,000 divided by $400,000, a CLTV of 77.5%. Caps of 80% and 85% are the most common starting points across home-equity lending, with some lenders extending to 90% for strong applicants, so 77.5% comfortably clears all three. The table above checks your own numbers against each cap, and if the request does not clear the most common 80% threshold, the callout above your results flags it plainly. That flag is a warning, not a block: some lenders do lend past 80%, so it is worth checking rather than assuming the door is closed.
Your combined monthly payment and debt-to-income
Adding a second loan on top of a first mortgage means two payments land on the same budget every month, so this calculator adds your typed first-mortgage payment to the new loan payment for a combined monthly housing figure. Lenders lean on a similar idea, most commonly the 28/36 guideline: housing costs at or under roughly 28% of gross monthly income, and all debt payments together at or under roughly 36%. This check is a housing-only version of that front-end ratio and deliberately leaves out a car loan, credit card or any other debt, since none of those are collected here; treat it as one data point rather than the full picture a lender will underwrite. A $2,090.84 combined payment against a $6,000 gross income comes to 34.85%, past the 28% guideline on its own, before any other debt is even added. Leave your income blank and the payment figures above still work fine; the debt-to-income line simply has nothing to divide by yet.
Fixed loan vs a HELOC's flexibility
A home equity loan and a HELOC borrow against the same equity but suit different situations. This loan gives certainty: the rate and payment are fixed the day you sign, so the number above is due every month for the whole term, unaffected by wherever rates move afterwards. A HELOC trades that certainty for flexibility: a revolving line drawn as needed rather than all at once, typically at a variable rate, suited to spending that happens gradually or in stages rather than a single known amount. Neither shape is better in general; a renovation billed in one contractor invoice suits the fixed lump sum here, while one paid out over several trades across a year suits a line drawn down as each bill lands. The HELOC Calculator covers that credit-line shape, including the payment jump between its draw and repayment phases, if a revolving line looks like the better fit once you have seen the numbers here.
What closing costs really cost you
Closing costs are cash due upfront, separate from the monthly payment, and lenders typically quote 2% to 5% of the loan amount to cover an appraisal, a title search, origination and similar fees. On the calculator's defaults, 3% of $60,000 is $1,800 due at closing. That fee changes what borrowing actually costs even though it never appears in the payment itself, so this calculator turns it into an effective rate: the rate that would produce the same $590.84 payment if it amortised only the $58,200 you actually walk away with. There is no closed-form formula for that reverse calculation, so it is solved by bisection, narrowing a guessed rate until the payment it implies matches the real one to the cent; on these numbers that lands at roughly 9.02%, about half a point above the 8.5% rate quoted on the loan. The gap grows with the closing-cost percentage and shrinks the longer the term, since the fee gets spread thinner the more payments carry it.
Renovation or consolidation: what actually changes
The two most common reasons for a home equity loan carry different risk profiles even though the calculator treats both the same way mathematically. Borrowing to renovate can add value back to the same property the debt is secured against, so the money has some chance of paying part of itself back over time. Borrowing to consolidate other debt moves balances that were previously unsecured onto the house itself; the rate usually falls, which is the appeal, but a missed payment on what used to be a credit card can now put the home at risk in a way it never did before. Neither use is wrong, but it is worth being honest about which one you are doing, and treating the second case with the same seriousness as the mortgage sitting alongside it.
Choosing your inputs
The loan amount is whatever you actually intend to borrow, not your full theoretical equity; the CLTV check above exists to show how much of that equity a given request would use up. The rate and term should match a real offer rather than an advertised or introductory figure, since a fixed-rate loan holds both constant for its whole life, unlike a HELOC's rate. Closing costs vary by lender and location, so treat 2–5% as a planning estimate and confirm the real figure on a loan estimate. The currency selector is cosmetic only, useful since fixed-rate secured second loans against a home exist in broadly similar form in several countries even where the exact product name differs.
Reading your results
The headline payment and the amortisation summary come from the plain loan formula alone, unaffected by anything else on the page. The combined-payment block adds your first mortgage on top for the number that actually leaves your account every month, and shows a debt-to-income figure once an income is entered. The loan-to-value gauge and table show where this request sits against the three common caps, with the flag above your results calling out plainly if it clears any of them. The donut splits the loan into principal and interest; the balance chart and yearly summary show that split playing out across the term, ending at exactly zero.
Questions people ask
What exactly is a home equity loan?
A lump sum borrowed against your home's equity at a fixed rate, repaid on a fixed monthly schedule over an agreed term, much like an ordinary mortgage but sized against equity rather than a purchase price. It is sometimes called a second mortgage because it sits behind the first mortgage in a foreclosure.
How is the monthly payment calculated?
With the standard amortising-loan formula: the loan amount multiplied by the monthly rate compounded over the term, divided by that compounding minus one. It is the same formula behind a mortgage or any other fixed-rate instalment loan, and this calculator runs it exactly, then simulates every payment for the amortisation summary above.
What counts toward my combined loan-to-value?
Your first mortgage balance plus the new loan amount you are requesting, divided by your home's value. Lenders combine every secured balance on a property into this single CLTV figure because, from the property's point of view, all of that debt sits against the same asset regardless of which lender holds which slice.
Why does my closing-cost percentage matter so much?
Because it is cash you pay upfront that never shows up in the monthly payment, so a headline rate alone can understate what the loan really costs. This calculator turns the fee into an effective rate, the rate that would produce the same payment on just the cash you actually receive, so a higher closing-cost percentage always pushes that effective figure further above the stated rate.
Is a home equity loan better than a HELOC?
Neither is better in general. A home equity loan gives a fixed payment and total certainty from day one, which suits a single known cost. A HELOC gives a revolving line, usually at a variable rate, which suits spending that happens gradually or in stages. The choice depends on how the money will actually be drawn, not which product sounds safer.
What debt-to-income ratio do lenders actually want?
Many lenders lean on a 28/36 guideline: housing costs at or under roughly 28% of gross income, and all debt payments together at or under roughly 36%, though actual limits vary by lender and loan type. This calculator's check is a housing-only figure, your first mortgage plus the new loan against income, and does not include other debts, so treat it as one data point rather than a full underwriting result.
Does this work for UK borrowing too?
The maths applies to any fixed-rate, fixed-term loan secured on a home, and the currency selector is cosmetic for that reason. UK lenders more often call the equivalent product a further advance or a second charge mortgage, and CLTV caps and typical fee structures can differ from the US conventions cited on this page, so check the terms of a specific UK offer rather than reading these figures across directly.
These figures are an estimate for a fixed-rate home equity loan and are not a loan offer or financial advice. Actual rates, fees, combined loan-to-value caps and debt-to-income requirements depend on the lender, the product and your circumstances at the time of applying.