Home Equity Line of Credit (HELOC) Calculator
Estimate your borrowing power based on your home's current market value and existing mortgage.
How Does a HELOC Work?
A Home Equity Line of Credit (HELOC) is a revolving line of credit, much like a credit card, that uses your home as collateral. Unlike a standard home equity loan, which provides a lump sum, a HELOC allows you to withdraw money as needed up to a specific limit during a "draw period" (typically 10 years).
How to Calculate Your HELOC Limit
Lenders generally use a combined loan-to-value (CLTV) ratio to determine how much you can borrow. Most lenders allow for a CLTV of 80% to 85% of your home's appraised value.
The formula used by our calculator is:
(Home Value × Max LTV %) – Existing Mortgage Balance = Available HELOC
Example Calculation
Suppose your home is worth $500,000 and your lender allows an 80% LTV. They will allow a total debt (first mortgage + HELOC) of $400,000. If you still owe $300,000 on your primary mortgage, your available HELOC would be $100,000.
Key Terms to Know
- LTV (Loan-to-Value): The ratio of a loan to the value of the asset purchased.
- Draw Period: The timeframe (often 10 years) during which you can withdraw funds.
- Repayment Period: The timeframe (often 15-20 years) after the draw period ends where you must pay back the principal and interest.
- Variable Interest Rate: Most HELOCs have rates that fluctuate based on the Prime Rate.
Is a HELOC Right for You?
HELOCs are popular for home renovations, debt consolidation, or emergency funds. However, because your home is collateral, failing to make payments could lead to foreclosure. Always consult with a financial advisor before tapping into your home equity.