HELOC Calculator
Most lenders allow 80-85% CLTV
HELOC Benefits
- ✓Draw only what you need, when you need it
- ✓Pay interest only on what you borrow
- ✓Interest may be tax-deductible (consult tax advisor)
- ✓Lower rates than credit cards or personal loans
Understanding HELOCs
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. It works like a credit card - you can borrow up to your credit limit, repay, and borrow again during the draw period.
How HELOCs Work
Draw Period (5-10 years)
- Borrow as needed up to your limit
- Make interest-only minimum payments
- Can repay and re-borrow
- Variable interest rate
Repayment Period (10-20 years)
- No more draws allowed
- Pay principal + interest
- Payments increase significantly
- Balance must be paid in full
Combined Loan-to-Value (CLTV)
Lenders use CLTV to determine how much you can borrow:
Most lenders cap CLTV at 80-85%, though some may go up to 90% for excellent credit.
Example Calculation
Home Value: $400,000
Mortgage Balance: $250,000
Max CLTV: 80%
Max Total Debt: $400,000 x 80% = $320,000
Available HELOC: $320,000 - $250,000 = $70,000
HELOC vs. Home Equity Loan
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Disbursement | Draw as needed | Lump sum |
| Interest Rate | Variable | Fixed |
| Payments | Interest-only, then P&I | Fixed monthly |
| Best For | Ongoing expenses, flexibility | One-time expense, predictability |
Common Uses for HELOCs
- Home renovations: Increase your home's value
- Debt consolidation: Pay off high-interest debt
- Emergency fund: Access to funds when needed
- Education expenses: College tuition payments
- Major purchases: Lower rates than credit cards
Risks to Consider
- Your home is collateral - foreclosure risk if you can't pay
- Variable rates can increase significantly
- Payments jump when draw period ends
- Closing costs and annual fees may apply
- Lenders can freeze or reduce your credit line
Frequently Asked Questions
What is a HELOC and how does it work?
A HELOC (Home Equity Line of Credit) is a revolving credit line secured by your home's equity. During the draw period (typically 5-10 years), you can borrow as needed up to your limit, paying only interest on what you use. After the draw period ends, you enter the repayment period where you pay both principal and interest over 10-20 years.
How much can I borrow with a HELOC?
Most lenders allow a Combined Loan-to-Value (CLTV) ratio of 80-85%. Calculate your maximum: (Home Value x 80%) - Existing Mortgage Balance. For example, a $400,000 home with $250,000 mortgage balance: ($400,000 x 80%) - $250,000 = $70,000 maximum HELOC. Some lenders go up to 90% CLTV for excellent credit.
What is the difference between a HELOC and home equity loan?
A HELOC is a revolving line of credit with variable rates - you draw as needed and pay interest only on what you borrow. A home equity loan is a lump sum with a fixed rate and fixed monthly payments. HELOCs offer flexibility for ongoing expenses, while home equity loans provide predictability for one-time needs.
What are the risks of a HELOC?
HELOCs carry several risks: your home is collateral (you could lose it if you can't pay), variable rates can increase significantly, payments jump when the draw period ends, and lenders can freeze or reduce your credit line if home values drop or your credit deteriorates. Only borrow what you can comfortably repay.