The important numbers that go into calculating a home equity loan are the amount of equity you have in your home, your credit score, and how much debt you have outside of your mortgage. Figuring out how much equity you have in your home is easy, first take the value of your home and then subtract the amount of the mortgage you have against it. The equity in your home will become the basis of what a lender is willing to extend you. 

Next a lender will pick a percentage, usually between 60% and 80% and multiply it by your equity. To decide on the exact percentage, the lender will evaluate your credit score, past payment history, and your total amount of debt; the lower your debt and the higher your credit score, the higher the percentage they will be willing to lend you. Every lender has different standards and policies for evaluating loans, but this process will give you a pretty good estimate of what you can expect to get.

Take, for example, a borrower who has a home worth $100k, $60k remaining on their mortgage, and excellent credit. This person has $40k in equity ($100k - $60k) and may be eligible for a $32k home equity loan ($40k * 80% [excellent credit] = $32k)

Figuring out a home equity loan’s payments is a little bit harder. I would recommend simply using a home equity loan calculator. The math behind an equity loan’s calculation is pretty complex, and not one that would be useful to reproduce here.

A similar process is used in calculating a Home Equity Line Of Credit(HELOC). If you are considering a home equity loan, you should also take the time to look into a HELOC, as they might be the right solution for you.

add comment – Jun 8, 2012 – flag