Second Mortgage CalculatorQualification Amount & Mortgage Payment
Looking to see how much you can borrow with a second mortgage? Use the second mortgage calculator below to:
- Estimate how much of your home equity you can access.
- Your monthly second mortgage payments.
What is a Second Mortgage?
When you take out an additional mortgage on a property that already has a mortgage, you're taking out a second mortgage. Unlike a mortgage refinance, a second mortgage does not replace the original mortgage. This means that you’ll be paying for two mortgages at the same time.
The most common types of second mortgages are home equity loans, home equity lines of credit (HELOCs), and private mortgages. Private mortgages are lent out by private lenders, and can include first mortgages, second mortgages, and even third mortgages. HELOCs and private mortgages usually have interest-only payments, allowing their monthly payments to be lower.
Home equity loans have monthly payments that are structured like a traditional loan, where principal payments are made to have the loan paid off by a certain date. This makes home equity loan payments higher than HELOCs and private mortgages.
Second mortgages are positioned so that if you do default, the first mortgage lender will be repaid first before the second mortgage. That makes second mortgages riskier for lenders, and so their interest rates will be higher than first mortgages.
What is Home Equity? 💡
The amount that you can borrow with a second mortgage depends on the amount of home equity that you have. Home equity is the difference between the current value of the home and the balance of all debt secured against the home, such as a mortgage.
When you make mortgage payments that reduce your mortgage principal, your home equity increases. Your equity will also increase if the value of your home rises. While you can ‘capture’ this equity by selling your home and paying off your mortgage, many homeowners want to use their equity while not selling their home.
Borrowing money using your home equity is a way to get access to a large amount of money at a low interest rate, since it is a secured loan. This second mortgage calculator first calculates the amount of equity that you have and then determines how much you can borrow with a HELOC as a second mortgage, with a home equity loan, or with a second private mortgage.
How Much Can I Borrow With a Second Mortgage?
With your existing mortgage, you can borrow up to a combined 80% of your home’s value with a HELOC or a home equity loan as a second mortgage. The maximum size of a HELOC on its own (not a second mortgage) is 65% of your home’s value. For private mortgages, you may be able to borrow up to 95% of your home’s value depending on the lender, but it’s common to still have a maximum LTV limit of 80% or 85%.
For example, let’s say that your home is valued at $500,000, and you currently have a mortgage of $300,000. Since $300,000 is 60% of $500,000, your current loan-to-value (LTV) is 60%. Since you can borrow up to 80% with a HELOC or home equity loan, you can borrow an additional 20% (80% maximum minus your 60% existing mortgage). This will allow you to borrow an additional $100,000, which is 20% of $500,000.
However, if your current mortgage is small enough, you may face the maximum limit for an individual HELOC, which is 65%. For example, if your mortgage balance is $50,000 on a home valued at $500,000, then your current LTV is 10%. This would normally mean that you can borrow another 70% ($350,000) based on the 80% limit, but in this case you will only be able to borrow 65%, or $325,000, with a HELOC.
The 80% limit for HELOCs is a maximum, but it doesn’t mean that you’re guaranteed to be approved to borrow up to this limit. Your HELOC lender may approve you for a lower limit based on your income or credit score.
Second Mortgage Payment Calculation
Many second mortgage lenders allow you to make interest-only payments on your HELOC or private second mortgage. Since you’ll only be making interest payments, the second mortgage principal will not decrease, which means that you will still owe as much as you started with at the end of your mortgage term.
By not paying off your principal with an interest-only second mortgage, your mortgage isn’t being amortized during this time. This means that you will need to make larger mortgage payments later to keep up with your scheduled amortization period.
Home equity loans require principal payments just like a regular primary mortgage. This second mortgage calculator determines your second mortgage payments as a regular mortgage payment for home equity loans, and as interest-only payments for HELOCs and private mortgages.
2nd mortgages typically have a higher mortgage rate when compared to 1st mortgages. Even though the monthly payments for an interest-only second mortgage would be lower, the total cost of the mortgage would be higher.
How Do I Estimate My Home Value? 💡
Since the amount that you can borrow with a second mortgage is based on your home value versus the amount you owe, you’ll need to know how to get your home’s value. While your second mortgage lender will require a home appraisal when you apply for a second mortgage, you can estimate your home’s value before then by researching local home values in your area. This can be done by looking at similar homes in your area that are listed for sale, and seeing what price they are listed for.
How Are Interest-Only Second Mortgage Payments Calculated?
To calculate your interest-only payments, multiply your second mortgage interest rate with the amount that you are borrowing. Then, divide this by 12 to get your monthly interest-only payments.
- Multiply interest rate by principal amount
$100,000 x 10% = $10,000
- Divide by 12
$10,000 / 12 = $833.33
The monthly interest-only payment would be $833.33 per month. None of the principal would be paid down with interest-only payments. If you were to have gotten a home equity loan that was amortized over 25 years, your monthly payment would have been $1,047 per month.