HELOC (Home Equity Line of Credit) Calculator
Total Value Borrowable:
$0.00
Current Mortgage:
$0.00
Interest-Only Monthly Payment:
$0.00
Available HELOC Amount:
$0.00
Understanding Your Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit, or HELOC, is a revolving credit line that allows homeowners to borrow against the equity they have built up in their property. Unlike a standard home equity loan, which provides a lump sum, a HELOC works more like a credit card: you borrow only what you need, when you need it, up to a specific limit.
How is HELOC Availability Calculated?
Lenders typically use a Loan-to-Value (LTV) ratio to determine how much credit they can extend. Most lenders allow for a combined LTV (CLTV) of 80% to 85% of your home's appraised value.
The Formula:
(Appraised Home Value × Max LTV Percentage) – Current Mortgage Balance = Your HELOC Limit
Example Calculation
If your home is worth $500,000 and your lender allows an 80% LTV, the total debt allowed on the property is $400,000. If you still owe $300,000 on your primary mortgage, your available HELOC limit would be $100,000 ($400,000 – $300,000).
Key Features of a HELOC
- Draw Period: The timeframe (usually 5-10 years) during which you can withdraw funds. During this time, you typically only pay interest on what you borrow.
- Repayment Period: Once the draw period ends, you can no longer take out money, and you must begin paying back both principal and interest (usually over 10-20 years).
- Variable Rates: Most HELOCs have variable interest rates tied to the Prime Rate, meaning your monthly payments can fluctuate over time.
Requirements for Approval
To qualify for a HELOC, lenders generally look for:
- Equity: At least 15% to 20% equity in your home.
- Credit Score: A score of 620 or higher (720+ for the best rates).
- Debt-to-Income (DTI): A DTI ratio below 43% is typically preferred.
- Proof of Income: Consistent earnings to ensure you can handle the payments.