How to Use Home Equity Loan Calculator Data to Your Advantage

The information you glean from using an Arizona home equity loan payment calculator can help you to make better-informed financial decisions before you ever speak with a lender. Here are some ways you can use the tool.

Validate Your Budget

The estimated monthly payment figure allows you to stress-test your monthly budget against a new debt obligation before committing to a loan. Assess whether the calculator’s estimated monthly payment expense fits comfortably within your existing financial obligations.

Try Out Different Scenarios

By adjusting variables like the loan term or the total loan amount, you can see the direct impact on your monthly payment. This process helps you find the optimal balance between the funds you need and a repayment amount you can confidently manage over the long term.

Set Realistic Expectations

Understanding your potential borrowing amount allows you to approach lenders with realistic expectations. You can use the calculator to evaluate loan offers as well.

These principles come to life when applied to specific financial situations, as shown in the following scenarios.

Home Equity Loan Scenarios

Examining hypothetical scenarios is a valuable way to understand how a home equity loan might impact your finances. Check out these two examples:

A homeowner wants to complete a major kitchen remodel with a total cost of $40,000. A home equity loan provides a single lump sum, allowing them to pay their contractor a large deposit upfront and begin the project immediately, with the confidence of a fixed monthly payment for the duration of the loan term.

Another homeowner has accumulated $30,000 in high-interest credit card debt spread across four cards, with interest rates changing frequently. By taking out a home equity loan, they can pay off all they owe at once, replacing four unpredictable, higher-rate payments with a single, fixed monthly payment — likely at a lower interest rate. Not only does the homeowner save money on credit card interest, but they’ve simplified their finances, trading one payment for four.

Tips on Home Equity Loans

The scenarios above provide some ideas about how to use a home equity loan. Here are some additional guidelines for making the best of this borrowing method.

•  Invest in your home’s value. Consider using the loan funds for expenses that could increase your home’s value, such as renovations or major repairs. This approach aligns your new debt with an increase in your primary asset’s value, potentially offsetting the interest costs over the long term and further building your wealth.

•  Compare offers from lenders. Don’t automatically opt for the first loan offer you receive. It might be a great deal, but it’s important to use the home equity loan payment calculator to compare rates from several different lenders to ensure you secure the most favorable interest rate from a lender that also has a good reputation for customer service.

•  Understand the risks. A home equity loan uses your house as collateral. This means your home is at risk of foreclosure if you fail to make your payments as agreed. Fully understand this responsibility before signing any loan documents.

•  Prepare your finances: Before applying, review your credit score and manage your debt-to-income (DTI) ratio. A strong credit score (at least 680 and ideally over 700) and a low DTI (well below 50%) can improve your chances of qualifying for the best possible interest rates.

If a home equity loan doesn’t seem like the right fit for your circumstances, it is important to know that alternative financing options are available.

Recommended: HELOC vs. Home Equity Loan

Alternatives to Home Equity Loans

There aren’t really different types of home equity loans, but there are different ways to borrow against your equity and also other ways to borrow that don’t involve putting your home up as collateral. Consider these options:

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured by your home equity. In practice, it functions similarly to a credit card. It has a “draw period” where funds can be borrowed as needed up to a set limit. During this time, you pay interest only on the amount you have borrowed. A HELOC interest-only calculator can show you what those payments might be.

The draw phase is followed by a “repayment period” where you pay both the principal and interest. The payment will be larger then, and a HELOC repayment calculator can show you how that might look. HELOCs typically have variable interest rates, meaning payments can change over time.

Home Improvement Loan

A home improvement loan is a type of unsecured personal loan. Because your home is not serving as collateral, there is no risk of foreclosure. These loans are often funded more quickly but may have higher interest rates and shorter repayment terms than home equity loans.

Personal Line of Credit

A personal line of credit is an unsecured, revolving credit line. Like a HELOC, funds can be drawn as needed, but unlike a HELOC, it is not secured by property. As with a home improvement loan, the interest rate might be higher than it would be with a HELOC or home equity loan.

Cash-Out Refinance

A cash-out mortgage refinance replaces an existing mortgage with a new, larger one. The borrower receives the difference between the new and old loan amounts as a lump sum of cash. As you consider a cash-out refinance vs. home equity line of credit, an important distinction is that a refi leaves you with one loan payment, while a HELOC or home equity loan would be a payment in addition to your mortgage payment. Only consider a refinance if interest rates in the market offer a savings when compared to your current mortgage interest rate. And be sure to factor in closing costs on a refi if you run the numbers on this option.

The Takeaway

A home equity loan could allow you to borrow a lump sum of money against your property’s value. Its fixed interest rate and predictable monthly payments make it an appealing way to access cash for big projects or to pay off debt. Using a home equity loan payment calculator can estimate your borrowing capacity and show you what monthly payments might be if you choose this borrowing method. Make sure you borrow responsibly by seeking out offers from multiple lenders to find the lowest rate for your needs.

SoFi now offers home equity loans. Access up to 85%, or $750,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.

Unlock your home’s value with a home equity loan from SoFi.

View your rate

FAQ

How is a home equity loan different from a home equity line of credit (HELOC)?

A home equity loan provides a single lump sum of money at a fixed interest rate, which is repaid with predictable monthly payments. In contrast, a HELOC is a revolving line of credit with a variable interest rate, allowing you to borrow funds as needed up to a predetermined limit.

How much can I borrow with a home equity loan?

The amount you can borrow depends on your home’s equity, your credit history, and your income and debt levels. While lenders commonly allow borrowing up to 85% of your available equity, this is not a universal standard. An Arizona home equity loan calculator can help you estimate borrowing costs based on your needs.

What can I use home equity loan money for?

You can use home equity loan funds for any purpose. Common uses include home renovations, debt consolidation, funding education, and covering other large, one-time purchases. There are generally no restrictions imposed by lenders on how the funds can be used.

Is the interest rate on a home equity loan fixed or variable?

Home equity loans typically come with a fixed interest rate. This means the rate remains the same for the entire duration of the loan, which results in consistent and predictable monthly payments.

What are the typical loan terms for a home equity loan?

Repayment terms for home equity loans are flexible, generally ranging from five to 30 years. A longer term will result in lower monthly payments but will also mean you pay more in total interest over the life of the loan.

What are the qualification requirements for a home equity loan?

Primary requirements for a home equity loan include having sufficient home equity (typically 15% to 20%), a good credit score (often 680 or higher), a steady income, and a debt-to-income (DTI) ratio that is acceptable to the lender (often below 50%).

Are there closing costs or fees with home equity loans?

Home equity loans do typically have closing costs, which can range from 2% to 5% of the total loan amount. Some lenders may offer loans with no closing costs, but this could result in a higher interest rate on the loan.

Does a home equity loan replace my first mortgage?

A home equity loan does not replace your first mortgage. It is a separate loan, often called a “second mortgage,” which means you will have two monthly payments: one for your original mortgage and one for the new home equity loan.