HELOC Calculator (Home Equity Line of Credit)
Estimate your maximum borrowing power based on your home's current market value and existing mortgage.
Estimated HELOC Availability
What is a HELOC and How Does it Work?
A Home Equity Line of Credit (HELOC) is a revolving line of credit, much like a credit card, that uses your home as collateral. Unlike a standard home equity loan, which provides a lump sum, a HELOC allows you to withdraw funds as needed up to a certain limit during a "draw period."
Understanding the HELOC Calculation
Lenders typically determine your credit limit using the Loan-to-Value (LTV) ratio. Most lenders will allow you to borrow up to 80% or 85% of your home's appraised value, minus what you still owe on your primary mortgage.
The Formula:
Realistic Example
Imagine your home is worth $500,000 and your lender allows an 80% LTV. Your total borrowing capacity is $400,000 ($500,000 x 0.80). If you still owe $300,000 on your mortgage, your estimated HELOC limit would be $100,000 ($400,000 – $300,000).
Benefits of a HELOC
- Flexibility: Borrow only what you need, when you need it.
- Lower Interest Rates: Because it is secured by your home, rates are usually lower than credit cards or personal loans.
- Interest-Only Payments: Many HELOCs allow you to pay only the interest during the draw period.
- Potential Tax Deductions: In some cases, interest may be tax-deductible if used for home improvements (consult a tax professional).
Important Considerations
Because your home is collateral, failing to make payments could result in foreclosure. Additionally, HELOCs typically have variable interest rates, meaning your monthly payments could increase if market rates rise.