HELOC (Home Equity Line of Credit) Calculator
How to Use the HELOC Calculator
A Home Equity Line of Credit (HELOC) works like a credit card secured by your home. To determine how much you can borrow, lenders look at your Combined Loan-to-Value (CLTV) ratio. This calculator helps you estimate the maximum line of credit available to you by subtracting your existing mortgage debt from a percentage of your home's current market value.
The HELOC Formula
Lenders typically follow this specific mathematical approach:
(Home Value × CLTV Limit %) – Existing Mortgage Balance = Maximum HELOC Amount
Example Calculation
Imagine your home is currently appraised at $400,000. You still owe $200,000 on your primary mortgage, and your lender allows a CLTV of 85%.
- Step 1: $400,000 × 0.85 = $340,000 (The total maximum debt allowed).
- Step 2: $340,000 – $200,000 = $140,000.
- Result: Your available HELOC limit would be $140,000.
Key Factors Influencing Your HELOC Limit
- Appraised Home Value: Professional appraisals determine the actual value, not just your estimate or Zillow's "Zestimate."
- Credit Score: Higher credit scores often unlock higher CLTV limits (e.g., 90% vs. 80%).
- Debt-to-Income (DTI) Ratio: Lenders verify that you have enough monthly income to cover the potential new HELOC payment along with existing debts.
- Equity Position: You generally need at least 15% to 20% equity in your home to qualify for a HELOC.
Why Consider a HELOC?
HELOCs are popular for home renovations because the interest rates are usually lower than credit cards, and you only pay interest on the amount you actually draw. During the "draw period" (often 10 years), you might only be required to make interest-only payments, providing significant cash-flow flexibility.