Calculate your potential Home Equity Line of Credit (HELOC) borrowing power.
Your Estimated HELOC Amount
—
Understanding Your Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a revolving line of credit that uses your home's equity as collateral. It functions similarly to a credit card, allowing you to borrow funds as needed up to a certain limit. Unlike a home equity loan, which provides a lump sum, a HELOC offers flexibility in borrowing and repayment during a specific draw period.
How a HELOC is Calculated
The maximum amount you can borrow with a HELOC is determined by your home's equity and the lender's maximum Loan-to-Value (LTV) ratio. The calculation is straightforward:
Calculate Total Available Equity: This is the difference between your home's current market value and the total amount you owe on all existing mortgages and liens against the property.
Total Available Equity = Current Home Value - Total Outstanding Mortgage Balance
Determine Maximum Borrowing Amount based on LTV: Lenders impose an LTV limit to ensure they maintain a safe margin and to comply with lending regulations. This LTV represents the maximum percentage of your home's value they are willing to lend against.
Maximum HELOC Amount = (Current Home Value * Desired LTV Ratio) - Total Outstanding Mortgage Balance
In simpler terms, a HELOC allows you to borrow a portion of the difference between your home's value and what you owe on it, up to the lender's specified LTV limit.
Example Calculation
Let's consider a hypothetical scenario:
Current Home Value: $500,000
Total Outstanding Mortgage Balance: $300,000
Lender's Desired LTV Ratio: 85%
Using the formula:
Maximum HELOC Amount = ($500,000 * 0.85) - $300,000
Maximum HELOC Amount = $425,000 - $300,000
Maximum HELOC Amount = $125,000
In this example, the homeowner could potentially access up to $125,000 through a HELOC, assuming they meet all other lender requirements.
Important Considerations
Draw Period vs. Repayment Period: HELOCs typically have a "draw period" (e.g., 10 years) where you can borrow funds, often paying only interest. After this, the "repayment period" begins, during which you must repay both principal and interest.
Variable Interest Rates: Most HELOCs have variable interest rates, meaning your monthly payments can change as market rates fluctuate.
Closing Costs: Be aware of potential closing costs, which can include appraisal fees, title insurance, and recording fees. Some lenders may waive these if you borrow a certain amount.
Home as Collateral: Remember that your home is used as collateral. Failing to make payments could result in foreclosure.
Lender Requirements: This calculator provides an estimate. Actual HELOC approval and amounts depend on your credit score, income, debt-to-income ratio, and the specific lender's policies.
This HELOC calculator is a valuable tool for estimating your borrowing capacity, helping you plan for home improvements, debt consolidation, or other significant expenses.
function calculateHELOC() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var outstandingMortgage = parseFloat(document.getElementById("outstandingMortgage").value);
var loanToValueRatio = parseFloat(document.getElementById("loanToValueRatio").value) / 100; // Convert percentage to decimal
var resultValueElement = document.getElementById("result-value");
var resultMessageElement = document.getElementById("result-message");
// Clear previous messages
resultValueElement.innerText = "–";
resultMessageElement.innerText = "";
// Input validation
if (isNaN(homeValue) || homeValue <= 0) {
resultMessageElement.innerText = "Please enter a valid current home value.";
return;
}
if (isNaN(outstandingMortgage) || outstandingMortgage < 0) {
resultMessageElement.innerText = "Please enter a valid outstanding mortgage balance.";
return;
}
if (isNaN(loanToValueRatio) || loanToValueRatio 1) {
resultMessageElement.innerText = "Please enter a desired LTV ratio between 1% and 100%.";
return;
}
var maxHELOCAmount = (homeValue * loanToValueRatio) – outstandingMortgage;
if (maxHELOCAmount 0) {
resultMessageElement.innerText = "This is an estimated maximum HELOC amount. Actual approval depends on lender policies.";
}
}