Sometimes, loans can be difficult to calculate. Home equity loan figures are no different, but they don’t have to be. All you need is a little understanding of the basics and a reliable equity calculator. Having a trustworthy loan officer available is also a highly valuable resource.
Here’s a quick guide to calculating your home equity loan:
Home equity means the amount of your home that you own outright. This is typically considered to be the amount of your mortgage you’ve already paid, which is often a driving factor for those searching for short mortgage terms.
Say you’ve purchased a home at $250,000. You’ve already paid 50% of your mortgage, leaving you with $125,000 in home equity, the amount you’ve paid into your home due to your monthly mortgage payments.
When someone refers to a home equity line of credit or home equity loans, they’re referring to a loan that you take out against your current home equity. These loans are typically taken out for a variety of reasons, like large home improvement projects, home refinancing, finance consolidation, etc.
Calculating your home equity loan or facets of your loan may seem fairly cut and dry, but there are a few aspects to remember. For example, you’ll need to know your home’s current market value (or appraised value) and the outstanding balance left on your mortgage loan.
Another important facet to consider is your loan-to-value ratio. This number helps lenders determine your interest rates and, in turn, your monthly payments. Your LTV can be calculated by inputting the full mortgage amount and dividing it by the amount the property is appraised for.
So, if you have a property that’s been appraised for $200,000, and you made a down payment of $20,000 (10% of the appraised value) resulting in your mortgage loan being $180,000, your equation would be:
180,000/200,000 = .9 or 90% (LTV)
While 80% or lower is thought to be best, having an LTV of 90% or more does not immediately discredit you as an applicant. You just may face higher interest rates if you meet the rest of your preferred lender’s requirements.
These are just a few simple, yet heavily important, factors in determining home equity loans and home equity lines of credit. However, there will typically be specifics based on your specific circumstances and your lender’s requirements.
I have been selling Real Estate in the Greater Boston Area since 1997. I am the Co-Founder & Current Broker/Owner of Realty Executives in Watertown. A lifelong resident of Watertown which I still reside with my Wife Debra and my Twins Emily & Christopher. I am a supporter of many local & national charities. One of my most rewarding fundraisers was as a rider in the PanMass Challenge in 2010,2011,2015 & 2016 raising over $50,000 over those 4 years for the Dana Farber Jimmy Fund. I am a 1988 Graduate of Bentley University in Waltham. I have extensive knowledge of all types of Real Estate participating in over 1000 transactions. I also have New Construction experience & specialize in condo conversions.
Purchasing a home is one of the single most important investments in a person's life. With my expertise and guidance in the home buying and selling process, I can help find the most appropriate home for you. You can be assured that an experienced Real Estate Professional is working with your interests in mind. Please contact me on my cell at 617-799-8948 or email [email protected] for a free consult if you are thinking of Buying or Selling your home.
