HELOC (Home Equity Line of Credit) Calculator
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Understanding Your HELOC Potential
A Home Equity Line of Credit (HELOC) is a flexible borrowing option that uses the equity in your home as collateral. Unlike a standard home equity loan, a HELOC works more like a credit card: you have a limit, and you can borrow against it as needed during the "draw period."
How is a HELOC Calculated?
Lenders typically determine your credit limit based on your Loan-to-Value (LTV) ratio. Most lenders allow a combined loan-to-value (CLTV) of up to 80% or 85% of your home's current market value.
Formula: (Home Value × Max LTV %) – Current Mortgage Balance = Available HELOC
Example HELOC Calculation
If your home is worth $500,000 and your lender allows an 80% CLTV, your total borrowing limit is $400,000. If you still owe $300,000 on your primary mortgage, your maximum HELOC line would be $100,000.
Key Terms to Know
- Draw Period: The timeframe (often 10 years) when you can withdraw funds and usually pay only interest.
- Repayment Period: The phase (often 20 years) when you can no longer borrow and must pay back both principal and interest.
- Variable Interest: Most HELOCs have variable rates tied to the Prime Rate, meaning your payment can change.
- Appraisal: A professional valuation of your home required by the lender to confirm the current market value.
Is a HELOC Right for You?
HELOCs are ideal for long-term projects with uncertain costs, such as home renovations, or for consolidating high-interest debt. However, because your home is collateral, failing to make payments could result in foreclosure. Always consult with a financial advisor before tapping into your home equity.