HELOC Calculator

How to Use This HELOC Calculator

1. Enter your current home value (you can use recent comparable sales, an appraisal, or online estimates).

2. Enter your current mortgage balance (the amount you still owe on your first mortgage).

3. Select the maximum combined loan-to-value ratio your lender allows (typically 80-85%).

4. Enter the HELOC interest rate (usually variable, based on the prime rate plus a margin).

5. Select your draw and repayment periods, then enter the amount you want to borrow.

6. Click "Calculate HELOC" to see your maximum credit limit and payment estimates for different scenarios.

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by the equity in your home. Unlike a home equity loan that provides a lump sum with fixed payments, a HELOC works more like a credit card. You receive a credit limit based on your available equity, and you can borrow any amount up to that limit, pay it back, and borrow again throughout the draw period.

HELOCs are popular because they offer flexibility. You only pay interest on the amount you actually borrow, not the full credit limit. This makes them ideal for ongoing expenses like home renovations where costs may vary, or for having emergency funds available without paying interest until you need them. Many homeowners use HELOCs for home improvements, debt consolidation, education expenses, or as a financial safety net.

HELOC Structure and Phases

• Draw Period: Typically 5 to 10 years during which you can borrow from your credit line. Most HELOCs require only interest payments during this phase, though you can pay toward principal if you choose. You can borrow, repay, and borrow again up to your limit.
• Repayment Period: After the draw period ends, you enter the repayment phase, typically lasting 10 to 20 years. You can no longer borrow additional funds, and your payments now include both principal and interest. Monthly payments increase significantly during this phase.
• Variable Rate: Most HELOCs have variable interest rates tied to the prime rate plus a margin set by your lender. When the Federal Reserve raises or lowers rates, your HELOC rate and payment adjust accordingly. Some lenders offer fixed-rate conversion options for a portion of your balance.
• Potential Tax Benefits: Interest on a HELOC may be tax-deductible if the funds are used for home improvements that substantially improve your residence. Consult a tax professional for guidance on your specific situation.

HELOC vs. Home Equity Loan

HELOCs and home equity loans both let you borrow against your home equity, but they work differently. A home equity loan provides a lump sum with a fixed interest rate and fixed monthly payments, similar to a traditional mortgage. A HELOC offers revolving credit with a variable rate and flexible borrowing. Choose a home equity loan when you need a specific amount for a one-time expense and want predictable payments. Choose a HELOC when you need flexibility or ongoing access to funds.

Both options put your home at risk as collateral. If you fail to make payments, the lender can foreclose on your property. Borrow responsibly and ensure you can afford the payments, especially when HELOC rates rise or when you transition from interest-only to full principal and interest payments.

Qualifying for a HELOC

Lenders consider several factors when approving a HELOC. You typically need at least 15% to 20% equity in your home after accounting for the HELOC. Most lenders require a credit score of 620 or higher, with better rates available for scores above 740. Your debt-to-income ratio, including the potential HELOC payment, generally should not exceed 43% to 50%. Lenders also verify your income and employment stability.

HELOC Limit Formula

Maximum HELOC is calculated as: HELOC Limit = (Home Value x Max LTV%) - Mortgage Balance

For example, with a $500,000 home, $280,000 mortgage balance, and 80% maximum LTV: ($500,000 x 0.80) - $280,000 = $120,000 maximum HELOC credit limit. Some lenders may allow up to 85% or 90% combined LTV for borrowers with excellent credit, though these higher-LTV products carry more risk and may have higher rates.