How Much Can You Borrow with a Fixed Term Home Equity Loan?
A Fixed Term Home Equity Loan allows you to borrow money based on the value of your home. Whether you are planning a home renovation, consolidating high-interest debt, or funding a significant expense, your home’s equity can be a reliable resource. But how much can you borrow? That depends on several factors.
In this post, we’ll explain how home equity is calculated and the key factors that influence how much you can borrow, and we’ll provide a simple example to illustrate the process.
How Is Home Equity Calculated?
To understand how much you can borrow, it’s important to understand how equity is calculated. Equity is the difference between your home’s current market value and the outstanding balance on your mortgage. Your equity grows as you pay off your mortgage, and your home’s value increases.
Here’s how to calculate your home equity:
Home Equity = Current Market Value of Home − Outstanding Mortgage Balance
For example, if your home is currently valued at $300,000 and you still owe $150,000 on your mortgage, your equity would be:
$300,000 − $150,000 = $150,000
You have $150,000 in home equity.
Factors That Determine How Much You Can Borrow
While your home’s equity is a major factor in determining how much you can borrow, several additional criteria come into play. Here’s what lenders consider:
Loan-to-Value (LTV) Ratio: Lenders use a loan-to-value (LTV) ratio to determine the maximum amount they’re willing to lend. Most credit unions and banks allow you to borrow up to 80% to 90% of your home’s value (minus what you still owe on your mortgage). The higher your equity, the more you may be able to borrow.
Credit Score: Your credit score plays a significant role in determining how much you can borrow and at what interest rate. A higher credit score can help you qualify for a larger loan with better terms.
Debt-to-Income (DTI) Ratio: Lenders will also consider your debt-to-income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. A lower DTI ratio indicates that you’re more likely to repay the loan, which may allow you to borrow more.
Income and Employment History: Your current income and employment stability will be reviewed to ensure you have the financial capacity to repay the loan. Lenders prefer borrowers with steady income and long-term employment history.
Example Calculation: How Much Can You Borrow?
Let’s return to our earlier example, where your home is valued at $300,000, and you have $150,000 remaining on your mortgage.
For loans up to 85% LTV, here’s how you can calculate the maximum loan amount you may qualify for:
First, calculate 85% of your home’s current value:
85% × $300,000 = $255,000
Next, subtract your outstanding mortgage balance:
$255,000 − $150,000 = $105,000
In this case, you may be able to borrow up to $105,000 through a Fixed Term Home Equity Loan. The exact amount will depend on additional factors like your credit score, DTI ratio, and income.
Why Home Equity Loans Are a Smart Borrowing Option
A Fixed Term Home Equity Loan allows you to borrow a lump sum with a fixed interest rate, making it a predictable and reliable option for large, one-time expenses. With People Driven Credit Union, you’ll enjoy competitive rates and personalized service, helping you secure a loan that fits your needs.
Looking to remodel your kitchen, consolidate debt, or fund your child’s education? A Fixed Term Home Equity Loan helps by leveraging the value you’ve built in your home.
Ready to See How Much You Can Borrow?
If you’re curious about how much equity you can tap into, People Driven Credit Union is here to help. Loan specialists are ready to discuss your options, guide you through the loan process, and help you secure the funds.
Contact us today to schedule your consultation and take the first step toward unlocking your home’s potential.
Spring into Savings!
No-Fee Home Equity Loan Promotion
March 19, 2025 through April 30, 2025
- No Fees on Fixed Term Home Equity Loans and Home Equity Lines of Credit -
For eligible new home equity loans.
