This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
What a HELOC is
A home equity line of credit (HELOC) lets you borrow against the part of your home that you own outright. It works like a credit card secured by the house: you draw what you need during a draw period, usually 10 years, often paying interest only, and then repay the balance with interest over a repayment period, often 20 years.
How much can you borrow?
Lenders cap the total of all loans on the home at a combined loan-to-value (CLTV), often 80% to 90%:
Maximum line = home value × CLTV − mortgage balance
Example
A $450,000 home, $250,000 still owed on the mortgage, and a lender cap of 85%:
- maximum line: 450,000 × 0.85 − 250,000 = $132,500;
- drawing $50,000 at 8.5% costs about $354 a month in interest only during the draw period;
- once repayment starts over 20 years, the payment rises to about $434 a month;
- total interest over 30 years: about $96,600.
The payment jump
The jump from interest-only to principal-and-interest payments surprises many borrowers. On large balances, it can be several hundred dollars a month. Paying down principal during the draw period softens it.
Variable rates
Most HELOCs have a variable rate tied to the prime rate plus a margin. If rates rise by 2 points, both the interest-only and the repayment payments rise. Test your budget with a higher rate. Some lenders let you lock part of the balance at a fixed rate.
HELOC, home equity loan or cash-out refinance?
- HELOC: flexible draws, variable rate, good for projects paid over time.
- Home equity loan: a lump sum at a fixed rate and fixed payment.
- Cash-out refinance: replaces the first mortgage; worth considering when current mortgage rates are close to or below your existing rate.
Costs and risks
- Watch for appraisal fees, annual fees, early-closure fees and minimum draw requirements.
- Interest may be tax-deductible only when the money is used to buy, build or substantially improve the home securing the loan.
- Your home is the collateral: missing payments can lead to foreclosure. Lenders can also freeze or reduce a line if home values fall.