How to Use the Home Equity Loan Calculator Data to Your Advantage

There are several ways you can leverage the data from a home equity loan calculator:

•  See the maximum loan amount. This establishes the possibility of what you can borrow. If you are planning a significant home renovation, this estimate helps you set a realistic budget. If your goal is debt consolidation, it can show you whether a home equity loan can cover all your high-interest balances.

•  Determine your estimated monthly payment. The estimated monthly payment is your key to assessing affordability and determining if the additional debt is manageable. A homeowner might qualify for a large loan but find the corresponding payment unmanageable, which is good to know before ever approaching a lender.

•  Compare offers from multiple lenders. Finally, armed with these estimates, you can compare offers from lenders. A homeowner with a baseline understanding of their potential borrowing capacity and monthly payments can more effectively evaluate the terms offered by different financial institutions.

Home Equity Loan Scenarios

The following scenarios illustrate how a home equity loan can be useful for everyday expenses.

Scenario 1: Home Remodeling

A family planning a major kitchen remodel has a quote of $40,000 from a contractor and needs the full amount upfront to begin the project. A home equity loan provides the exact lump sum required, and its fixed interest rate ensures their monthly payment will not change, allowing for predictable budgeting throughout the multi-year repayment period.

Scenario 2: Debt Consolidation

A homeowner is managing multiple high-interest debts, including several credit card balances with variable rates that total $25,000. The fluctuating payments are difficult to manage. By taking out a home equity loan, they can consolidate all these balances into a single loan with a lower, fixed interest rate and one consistent monthly payment, simplifying their finances and potentially saving thousands in interest over time.

Scenario 3: Funding a Major Expense

A couple preparing for their child’s wedding needs to cover a large, one-time catering expense of $15,000. A home equity loan is well-suited for this purpose. It provides the necessary funds in a single payout, allowing them to pay the vendor in full without draining their savings or relying on high-interest credit cards, and the fixed repayment schedule gives them a clear path to paying off the expense.

Tips on Home Equity Loans

Strategically positioning yourself as a low-risk borrower is the most effective way to secure favorable terms. The following steps outline how to strengthen your financial profile before engaging with lenders.

•  Build a strong credit score: Lenders’ credit score requirements vary, but they typically look for a score of at least 620. Achieving a score over 700 will likely result in the most competitive interest rate offers.

•  Manage debt-to-income ratio: Your debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. Lenders prefer a lower ratio, below 50%, as it shows you have enough income to comfortably manage another loan payment.

•  Maintain sufficient home equity: To qualify for a loan, lenders typically require you to have at least 20% equity in your home. You can build equity by making regular mortgage payments and through property value appreciation.

•  Shop around and compare lenders: Do not accept the first offer you receive. Obtain quotes from multiple lenders, including banks, credit unions, and online lenders. Comparing rates, fees, and terms can lead to substantial savings over the life of the loan.

•  Understand the risks: Always remember that a home equity loan uses your home as collateral. This means that if you fail to repay the loan according to the terms, the lender has the legal right to foreclose on your property.

Alternatives to Home Equity Loans

While there aren’t different types of home equity loans, a home equity loan is just one of several options for accessing home equity or securing financing. Here are four alternatives to consider:

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is a revolving line of credit secured by your home, operating much like a credit card. It has a two-phase structure: a “draw period,” often lasting 10 years, during which you can borrow funds as needed up to a preapproved limit, followed by a “repayment period,” typically 20 years, when you repay the principal and interest.

Unlike a home equity loan, a HELOC usually has a variable interest rate and offers the flexibility to borrow only what you need, when you need it. A HELOC interest-only calculator can calculate what your payments might be during the initial period. To determine your principal plus interest amount during the subsequent repayment period, you can use a HELOC repayment calculator.

Recommended: What Is a Home Equity Line of Credit?

Home Improvement Loan

A home improvement loan is a type of unsecured personal loan, meaning your home is not used as collateral. This significantly reduces the risk for the homeowner, as the property cannot be foreclosed upon for non-payment. However, because it is unsecured, it may come with a higher interest rate and a shorter repayment term compared to a home equity loan.

Personal Line of Credit

A personal line of credit is an unsecured, revolving line of credit that is not tied to your home’s equity. This makes it a less risky option for your home, but it may also result in a higher interest rate or a lower credit limit compared to a HELOC. It provides flexible access to funds, similar to a credit card.

Cash-Out Refinance

A cash-out mortgage refinance involves replacing your existing mortgage with a new, larger one and receiving the difference in cash.

When comparing a cash-out refinance vs. home equity line of credit, a cash-out refinance results in a single, new primary mortgage rather than a separate second mortgage. Because it replaces the primary mortgage rather than adding a second one, it is often easier to qualify for than a home equity loan or HELOC. This option can be particularly beneficial if you can secure a lower interest rate on the new, larger mortgage.

Recommended: HELOC vs. Home Equity Loan

The Takeaway

A Michigan home equity loan calculator provides clear, personalized estimates to help homeowners understand their potential borrowing power and preview the financial commitment of a loan before engaging with lenders.

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.

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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 cash that is repaid at a fixed interest rate, resulting in predictable monthly payments. In contrast, a HELOC is a revolving line of credit with a variable interest rate, allowing a homeowner to borrow funds as needed up to a set limit during a specified draw period.

How much can I borrow with a home equity loan?

The amount depends on your home’s equity, which is the market value minus your mortgage balance. Many lenders allow borrowing up to 85% of your home’s equity. The final amount also depends on factors like your credit history, income, and debt-to-income ratio.

What can I use home equity loan money for?

The funds from a home equity loan are flexible and can be used for a wide range of purposes. Common uses include home improvements and remodels, consolidating high-interest debt, funding education or wedding costs, or covering other large, one-time expenses.

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

Home equity loans almost always come with a fixed interest rate. This means the rate does not change over the life of the loan, which provides the benefit of predictable and consistent monthly payments that are easy to budget for.

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

Repayment terms for home equity loans are flexible, allowing borrowers to choose a timeline that fits their budget. These terms generally range from as short as five years to as long as 30 years.

What are the qualification requirements for a home equity loan?

The main qualifications include having sufficient home equity (typically at least 20%), a good credit score (often 620 or higher), and a manageable debt-to-income ratio (below 50%). Lenders will also require proof of steady income to ensure you can afford the monthly payments.

Are there closing costs or fees with home equity loans?

Yes, home equity loans typically have closing costs, similar to a primary mortgage, which can range from 2% to 5% of the total loan amount. These costs may include fees for the property appraisal, title search, and loan origination.

Does a home equity loan replace my first mortgage?

No, a home equity loan is a second mortgage and functions as an additional, separate loan. It does not replace your primary mortgage. After closing, you will be responsible for making two separate monthly payments: one for your original mortgage and one for the new home equity loan.