How Much Can I Borrow on a Home Equity Loan?

Home equity loans offer low interest rates and equal monthly payments on the amount borrowed. People can use them for anything, including home improvement, debt consolidation or purchasing a new vehicle.

Calculations

Estimate the current value of your home by comparing it to similar homes in your neighborhood that have sold recently. Subtract your remaining balance on your mortgage and any other loans for which your home is collateral to find the amount of equity you have.

Types

Traditional home equity loans allow your total debt on your home, including the home equity loan, to be about 80 percent of your home's value. This leaves a cushion of 20 percent of the home as equity. Some lenders offer high loan-to-value home equity loans that allow you to borrow more than 80 percent of your home's value but charge higher interest rates.

Considerations

Be careful how much debt you have against your home if home prices are falling in your neighborhood. If you owe the full value of your home and its value drops, you will owe the bank money after you sell your home.

References

• Bankrate: Home Equity Basics: What Lenders Look For
• Bankrate: Home Equity Basics: Risks of High LTV Loans