Most home owners know that the lower the interest rate, the lower the monthly payments. But then the process may get a bit fuzzy. While your monthly payments may be the same every month, you are not applying the same amount to the principal of the loan. Your amortization will vary month to month. So, you will have to use a little math to determine how much equity you are actually gaining. Are you confused yet? If you are, don't worry. There is luckily a very helpful tool that will take the guess work out of home equity loans. Before you commit to anything, you should play around with a home equity loan calculator to determine how much you can borrow. There are many sites available online that give you free access to a wealth of tools and calculators.
What is a home equity loan calculator? Basically, it is a mathematical program that will ask for a few key pieces of information. It will then calculate how much you can borrow, and show you an example of what your amortization schedule would look like. Your lender may use a similar program to determine the amount that you can borrow against your home.
Once you find a home equity loan calculator, you will need to enter in a little bit of information. First it will ask you the value of your home. Typically, the more accurate this figure the more likely you are to get an accurate end result. Most appraisal companies will take private orders, so you can order an appraisal at any time prior to actually obtaining a loan. Prices vary by location, but you can expect to spend a few hundred dollars obtaining a report. Second, you will be asked the amount owed on your current mortgage. This should include any first or second mortgages that you may already have out. Consult your mortgage lender to find out the exact amount owed at the present time. From these two figures the program will determine how much equity you have in the home. You may also be asked for the loan to value ratio required. This is typically 80%, 90%, 100%, or even 125%.
Once you have these figures entered into the program, you are likely to receive a graphical representation of your results. You should receive a chart or graph outlining the amount that you could borrow at 80%, 90%, 100% and 125%, and your estimated monthly payment. It may also include a sample of your amortization schedule, so that you can see how much of your monthly payment is going toward the principal at any given point during the loan. The graph may also show how much you could borrow if you the value of your home was more or less than your appraised value. This can be useful if you are using a ballpark figure or plan to make some improvements to the home in the near future.
The first step in obtaining a home equity loan should be researching your options. A home equity loan calculator is an excellent tool to compare and contrast different loan products and determine how much you will have to pay each month.
John Ross is a freelance author who writes articles about financial loans including: home equity loans company, online home equity loans, and fixed rate home equity loans. The Loanchbox is a user friendly website designed to inform beginners about home equity loans.