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

The output from a Montana home equity loan calculator is more than just a set of numbers; it provides actionable insights that can help you plan. These are ways to capitalize on the calculator’s results:

Doublecheck Your Budget

The estimated monthly payment figure shown by the home equity payment calculator allows you to assess whether you can meet a new debt obligation within your monthly budget before committing to a loan. Does the calculator’s estimated monthly payment fit within your existing financial obligations? If so, proceed.

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

The home equity calculator will show you how much you might conceivably borrow based on your equity. But the monthly payment estimate makes the costs clear and also 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 you think about some of the scenarios in which a home equity loan might be used.

Home Equity Loan Scenarios

Home equity loans can be used for practically any purpose. These are just two examples.

Scenario 1: Funding a Major Home Improvement Project

Imagine a Montana homeowner who wants to complete a full kitchen remodel with a cost of $50,000. They have sufficient equity in their home and a stable income. They apply for a home equity loan and receive the full $50,000 in a lump sum. This allows them to pay their contractor and purchase materials without worrying about depleting their emergency fund or overtaxing their credit card (or both). Because the loan has a fixed 8.15% interest rate and a set repayment term of 15 years, their monthly payment of $482 is predictable.

Scenario 2: Consolidating High-Interest Debt

Consider another homeowner who has accumulated $45,000 in high-interest debt across three credit cards. The variable interest rates make the monthly payments unpredictable. By consolidating an average credit card interest rate of 21.00% into a home equity loan at 8.50%, the homeowner realizes substantial savings in interest payments. They now have one monthly payment instead of three — and it’s a predictable amount. As long as the homeowner can avoid accumulating new high-interest debt, the consolidation should be successful.

Tips on Home Equity Loans

While a home equity loan can be a helpful financial tool, it is also a significant commitment. Follow these best practices:

•  Cultivate good credit. Lenders view a consistent history of timely payments as a sign of financial responsibility. A strong credit score (700 plus) often leads to more favorable interest rates, which can result in significant savings over the life of the loan.

•  Manage existing debt. Your debt-to-income (DTI) ratio compares your monthly debt payments to your income. While lenders may accept a DTI up to 50%, a ratio below 36% makes an applicant more attractive and more likely to secure favorable rates.

•  Borrow only what you need. It can be tempting to request a loan for the maximum amount available. Avoid taking on unnecessary debt by carefully calculating the funds required for your project or goal.

•  Compare offers from multiple lenders. Interest rates, fees, and loan terms can differ significantly between lenders. Shop around and use the calculator to compare interest rate offers.

•  Understand the risks. The failure to make payments on your home equity loan on time can have severe consequences, including the risk of foreclosure.

Alternatives to Home Equity Loans

While a home equity loan is an excellent option for many homeowners, it is not the only way to leverage your home’s value or secure financing for large expenses. Here’s a larger list of options:

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit that is secured by your home. Borrowers can draw funds as needed up to a set limit during a “draw period” and only pay interest on the amount used. A HELOC interest-only calculator can show you what an interest-only payment might amount to. A HELOC repayment calculator will show what you would pay during the repayment phase when you have to repay all that you borrow, with interest.

HELOCs typically have variable interest rates, which means payments can change over time. This makes a HELOC better suited for ongoing projects with uncertain costs, whereas a home equity loan is ideal for a single, large expense with a known price tag.

Home Improvement Loan

A home improvement loan is a type of personal loan. It is typically unsecured, which means your home is not used as collateral. Because the lender takes on more risk with an unsecured loan, home improvement loans may have higher interest rates and shorter repayment terms compared to a home equity loan. This option is best for homeowners who need funds for smaller projects and prefer not to use their property as collateral.

Personal Line of Credit

A personal line of credit is another unsecured, revolving credit option. Like a HELOC, it offers the flexibility to borrow as needed up to a set limit, but without using the home as collateral. It serves well for those who need flexible access to funds but lack sufficient home equity or prefer not to leverage their home equity for a loan.

Cash-Out Refinance

A cash-out mortgage refinance replaces your existing primary mortgage with a new, larger one. You receive the difference between the old and new loan amounts in cash. A refinance will likely only be attractive if you can also secure a lower interest rate than you currently have on your primary mortgage. Remember to factor in closing costs when you examine the expense involved with a cash-out refinance.

As you compare a cash-out refinance vs. a home equity line of credit, consider this: The refinance will leave you with one consolidated mortgage payment, unlike a home equity loan, which is a separate, second payment.

The Takeaway

Using a Montana home equity loan calculator is a smart first step toward borrowing based on the equity you’ve built up in your home. You can easily estimate your borrowing power, project your monthly payments, and make preliminary plans before connecting with a lender. You can also use the calculator to estimate lenders’ offers to determine which combination of rate and term is best aligned with your goals.

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 money at a fixed interest rate, with repayment beginning immediately. A HELOC offers a revolving line of credit and usually has a variable interest rate. With a HELOC, you borrow funds as needed during a specific draw period. In the simplest terms, a home equity loan is often best for a large, one-time expense, while a HELOC is better for ongoing projects with fluctuating costs.

How much can I borrow with a home equity loan?

The amount you can borrow with a home equity loan depends on your equity level, credit history, income, and other debts. Most lenders want your total mortgage balance to stay within 85% of your home value. (A home equity loan is technically a second mortgage.) This ensures you maintain a protective equity cushion in your property after the loan is issued. So if your home is worth $500,000, and your mortgage balance is $350,000, you have $75,000 of available equity: (500,000 – 350,000) x .85 = 75,000.

What can I use home equity loan money for?

Funds from a home equity loan can be used for a wide variety of purposes. Common uses include home improvements, debt consolidation, covering medical bills, or funding other major purchases. There are generally no restrictions on how the money is spent — the most important thing is to have a plan to repay the loan.

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

Home equity loans almost always come with a fixed interest rate. This provides stability and predictability, as your interest rate and monthly payment amount will remain the same for the life of the loan.