HELOC Payment & Borrowing Calculator
Estimate your available line of credit and monthly interest-only payments.
Understanding Your Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit, or HELOC, is a powerful financial tool that allows homeowners to borrow against the equity they have built in their property. Unlike a standard home equity loan, a HELOC works more like a credit card: you have a limit, you can draw funds as needed, and you only pay interest on the amount you actually use.
How is a HELOC Calculated?
Lenders typically use a Combined Loan-to-Value (CLTV) ratio to determine how much you can borrow. Most lenders limit the CLTV to 80% or 85% of your home's appraised value. The formula looks like this:
(Home Value × CLTV Percentage) – Current Mortgage Balance = Your Maximum HELOC Limit.
Example Calculation
If your home is worth $500,000 and your lender allows an 80% CLTV, your total borrowing capacity is $400,000. If you still owe $300,000 on your primary mortgage, your maximum HELOC limit would be $100,000.
Interest-Only Payments vs. Principal and Interest
During the "draw period" (usually the first 10 years), many HELOCs allow for interest-only payments. This keeps monthly costs low while you are completing projects or managing expenses. Once the draw period ends, you enter the "repayment period," where you must pay back both the principal and interest over a set term (often 20 years).
Why Interest Rates Matter
Most HELOCs have variable interest rates tied to the Prime Rate. This means your monthly payment can fluctuate. It is important to calculate your payment using a slightly higher rate than currently offered to ensure you can still afford the debt if rates rise.
Common Uses for a HELOC
- Home Renovations: Increasing the value of the asset that secures the loan.
- Debt Consolidation: Paying off high-interest credit cards with a lower-interest HELOC.
- Emergency Fund: Having a line of credit available for unexpected major expenses.
- Education Expenses: Funding tuition with potentially tax-deductible interest (consult a tax advisor).