HELOC (Home Equity Line of Credit) Calculator
Your HELOC Estimate
*Note: This is an estimate. Lenders also consider credit score, income, and debt-to-income ratios.
Understanding Home Equity Lines of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a revolving line of credit, much like a credit card, secured by your home. It allows you to borrow against the equity you've built in your property, providing a flexible way to fund home improvements, debt consolidation, or emergency expenses.
How is HELOC Borrowing Power Calculated?
Lenders typically allow you to borrow up to a certain percentage of your home's total value, known as the Loan-to-Value (LTV) limit. The calculation follows this formula:
Realistic Example
Imagine your home is currently worth $500,000. You still owe $300,000 on your primary mortgage. If a lender offers an 80% LTV limit, here is how they determine your credit line:
- $500,000 (Value) × 0.80 (LTV) = $400,000 total borrowing limit.
- $400,000 – $300,000 (Existing Debt) = $100,000 HELOC limit.
Draw Period vs. Repayment Period
Most HELOCs consist of two phases:
- Draw Period (Usually 10 years): You can borrow money as needed and typically make interest-only payments.
- Repayment Period (Usually 20 years): You can no longer withdraw funds, and you must pay back both principal and interest, which significantly increases your monthly payment.
Key Benefits of a HELOC
- Flexibility: Only borrow what you need, when you need it.
- Lower Interest Rates: Because it is secured by real estate, rates are usually much lower than credit cards or personal loans.
- Tax Deductibility: In some cases, interest may be tax-deductible if used for home improvements (consult a tax advisor).