$150,000 of equity, and $90,000 the lender will actually lend
Equity is the home’s value less the first mortgage: $400,000 minus $250,000 leaves $150,000. What a lender will advance is governed by combined loan-to-value instead — the first mortgage plus the new loan, measured against the value. At a common 85% ceiling, total borrowing may reach $340,000, and with $250,000 already outstanding that leaves $90,000 available.
Equity = Home Value − Mortgage Balance | Max loan = Home Value × 0.85 − Mortgage
The $60,000 difference between the two figures is the lender’s cushion, and it exists because forced-sale proceeds rarely match an appraisal. Borrow the full $90,000 and the combined LTV lands exactly on 85%. Lenders differ: some cap at 80%, which would allow only $70,000 here, and a few go to 90% for strong credit. The cap is the number to ask about first, because it determines the entire conversation.
This loan is $619.93 a month for ten years, known in advance
A home equity loan advances the whole amount at once and repays it on a fixed schedule — here $619.93 a month for 120 months, with $24,391 of total interest. A HELOC instead gives a limit you draw against at a variable rate, usually interest-only at first. Both are secured on the same collateral and both sit behind the first mortgage.
The choice follows the purpose. A known, one-off cost — a specific renovation, a debt consolidation of a known balance — suits the lump sum and the fixed rate, because the payment cannot move and the loan self-liquidates. Irregular or staged spending suits a line, because you pay interest only on what you have actually drawn. Taking a lump sum for spending that has not happened yet means paying interest on money sitting idle.
Second position means the first mortgage is repaid before this lender sees anything
A home equity loan is a second lien. In a forced sale the first mortgage is settled in full before the second receives a cent, so the second lender carries materially more risk and prices accordingly — commonly one to three points above first-mortgage rates, as the 8.5% default reflects against a market where first mortgages sit lower.
That ordering also constrains what you can do later. Refinancing the first mortgage usually requires the second lender to agree to stay subordinate, and that consent is not automatic. It is worth knowing before you take a second loan that it can complicate a future refinance of the larger one.
Replacing 22% card debt with 8.5% secured debt is a real saving and a real transfer of risk
The common justifications are home improvement, debt consolidation and large one-off costs. Improvement has a coherent logic: the borrowing is secured on an asset the spending may also improve, and in the US interest may be deductible when the loan is used to buy, build or substantially improve the home that secures it — a rule worth confirming against current IRS guidance and your own circumstances.
Consolidation is where care is needed. Moving card balances at 22% onto a secured loan at 8.5% genuinely lowers the interest cost. It also converts unsecured debt into debt that can cost you the house, and stretches a balance that might have cleared in three years across ten. The saving is real only if the cards stay paid off afterwards.
An appraisal you have not had yet, and a rate you have not been quoted
The home value entered is your estimate. The lender will use a formal appraisal, and if it comes in below your figure the available amount falls with it — a $20,000 lower valuation removes $17,000 of borrowing capacity at an 85% cap. Closing costs, appraisal fees and any origination charge are outside the payment shown.
The 85% ceiling is a widely used convention, not a rule; your lender’s cap, your credit score and your debt-to-income ratio will all shape the actual offer. And the payment here covers principal and interest only — it does not change your property tax or insurance, both of which continue alongside it.
Frequently Asked Questions
What is the difference between a home equity loan and a HELOC?
A home equity loan gives you a single lump sum at a fixed rate, repaid in equal monthly installments. A HELOC (home equity line of credit) is revolving credit with a variable rate that you draw from as needed. The loan is predictable; the line is flexible but its payments can change.
How much can I borrow against my home?
Lenders look at your combined loan-to-value (CLTV): your existing mortgage plus the new loan, divided by the home value. Many cap CLTV around 85%, so your borrowing limit is roughly the home value times that cap, minus what you still owe. This calculator shows that limit as the max borrowable figure.
What is home equity?
Equity is the part of your home you truly own: the current market value minus the balance you still owe on your mortgage. It grows as you pay down the mortgage and as the home appreciates. A home equity loan lets you borrow against that equity.
What can a home equity loan be used for?
Common uses include home improvements, consolidating higher-interest debt, or large one-time expenses. Because the loan is secured by your home, rates are usually lower than unsecured borrowing, but the stakes are higher since the home is the collateral.
What are the risks of borrowing against my home?
The main risk is that your home secures the loan, so falling behind on payments can put the property at risk. Borrowing also reduces your equity, which matters if home values fall or you need to sell. Borrow only what you can comfortably repay.
What costs come with a home equity loan?
Beyond interest, you may face appraisal fees, origination or application fees, and other closing costs. This calculator models principal and interest only, so ask your lender for a full cost breakdown before you commit.
When should I be cautious about a home equity loan?
Be careful if your income is unstable, if you would be borrowing for everyday expenses, or if a high combined LTV leaves little cushion. Turning unsecured debt into debt secured by your home raises the consequences of missing payments. Consider the trade-off carefully.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates based on the figures you enter and standard formulas. Rates, fees, taxes, and lender terms vary and change over time, so confirm important numbers with your lender or a qualified professional. This is educational information, not financial advice.