HELOC (Home Equity Line of Credit) Calculator
Estimate how much credit you can access based on your home's value.
Understanding Your Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a revolving line of credit that allows homeowners to borrow against the equity they have built in their property. Unlike a traditional home equity loan, which provides a lump sum, a HELOC works more like a credit card with your home serving as collateral.
How is a HELOC Limit Calculated?
Lenders typically use the Combined Loan-to-Value (CLTV) ratio to determine your borrowing limit. Most lenders will allow you to borrow up to 80% or 85% of your home's total appraised value, minus what you still owe on your primary mortgage.
The Formula:
(Home Value × Max LTV Ratio) – Current Mortgage Balance = HELOC Limit
Example Calculation
Imagine your home is worth $500,000 and your lender allows an 80% CLTV. Your current mortgage balance is $300,000.
- Total allowable debt: $500,000 × 0.80 = $400,000
- HELOC Limit: $400,000 – $300,000 = $100,000
Key Factors Affecting Your HELOC Approval
- Credit Score: A higher credit score (typically 680+) often leads to better interest rates and higher LTV limits.
- Debt-to-Income (DTI) Ratio: Lenders look at your monthly debt obligations compared to your gross income. A DTI below 43% is generally preferred.
- Home Appraisal: Since the loan is based on value, a professional appraisal is usually required to confirm the current market price of the property.
HELOC vs. Home Equity Loan
While both use your home as collateral, a Home Equity Loan provides fixed payments and a fixed interest rate with a one-time payout. A HELOC offers a variable interest rate and a "draw period" (often 10 years) where you only pay interest on what you actually spend, followed by a "repayment period" (often 20 years).