This calculator will estimate how large of a credit line you may be able to qualify for, for up to four lender Loan-to-Value ratios (percent of value of home a lender is willing to loan out).
For your convenience current mortgage rates are published below.
See Heloc & Home Equity Loan Rates
We publish currently available HELOC & home equity loan rates. Homebuyers looking to extract equity quickly without having to go through the slower refinancing process can see local second mortgage rates. Use the drop down menu to select which products you are interested in. You can select HELOCs, and any combination of the following duration home equity loans: 5, 10, 15, 20 and 30 years.
Credit Line Qualification
When diving in to the initial home ownership phase of meeting with a broker and choosing the appropriate loan for your anticipated finances, you will often find that the issue of home equity line of credit becomes of the utmost importance. The amount of the line of credit and associated mortgage rate that you will be offered is largely dependent on your loan to value ratio. Of course, there are other influential figures involved – such as credit score, age, tax bracket and style of loan desired – but the loan to value ratio remains one of the key players to decide just how large of a mortgage you can get over how many years and with how much interest.
The Loan to Value Ratio
So what is the loan to value ratio and why is it so important? The LTV is a statistic contrasting the value of your loan to the value of your home. If you must obtain, for instance, a loan for the amount of $50,000 and the cost of your new home is $150,000, your LTV would be 1/3 or 33%. Actual purchase price rather than official appraisal value of the home is used when calculating the LTV because the purchase price is generally slightly lower, providing the home owner with a lower LTV altogether. As you will see, the lower LTV is what you are aiming for.
The lower your LTV, the more equity you already have in your home, and the less cash you must borrow via your mortgage. Accordingly, those with a lower LTV are considered less of a needy or risky case by the lender and therefore rewarded for their stability and positive equity by a fairly low interest rate on their loan. In contrast, those who have a higher LTV because they are purchasing a home well above their budget or because they have less net income to start with, typically get landed with a slightly higher annual interest rate on the terms of their loan. It is an unfair process, perhaps, to the prospective home owners, but one that keeps the lenders thriving in business.
How Much Equity Can I Extract?
Lenders typically allow homeowers to tap up to between 80% - 85% of their home equity while still offering fairly competitive reates. Loans which have a loan-to-value (LTV) ratio above this may be hard to qualify for or charge higher rates of interest. Government-backed programs have hard caps on the LTV values which will qualify for securitization. FHA & USDA cash out refinance limit LTV to 80% whereas the VA cash out refinancing limit is set to 90% LTV.
To calculate how much equity you can use you have to subtract your current loan balance from the limit. Examples are shown below.
|Loan Type||LTV Limit||Home Value||Loan Limit||Current Balance||Maximum Available Equity|
Just because one can use up to the limit does not mean one should maximize their borrowing unless they have an important purchase which is likely to significantly improve quality of life through:
- paying for a child's education
- helping a partner or parent through health related issues
- earning far more than they will spend on additional interest
Credit Line Qualification that Works to Your Advantage
Of course, an interest rate is not always a hard and fast figure that you must deal with for the remaining life of your loan. You may purchase points at the mortgage closing which will give you a slightly higher mortgage to pay off in exchange for a lower APR. Or you may consider refinancing or consolidating your loan(s) when you are a few years into the amortization process. There are many ways to lower interest rate or lessen the life term of your loan by negotiating and haggling with your lender. Some even choose to opt for biweekly payments of the mortgage bill, rather than the standard monthly bill, which will lead to significant savings in the long term and will seem like a drop of money in the bucket each month as it occurs.
Maneuver the amount of mortgage you may qualify for based on your LTV by scouting out theoretical situations well beforehand using this tool. The calculator will show you just how large a line of credit you may be eligible for dependent on the ratio of your LTV in four different scenarios.