What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by the equity in your home. It functions similarly to a credit card, allowing you to borrow against your spending limit as needed. HELOCs typically have two phases: a draw period (usually 5-10 years) where you can access funds and pay interest only, followed by a repayment period (10-20 years) where you must pay back both principal and interest.

How is the HELOC Limit Calculated?

Lenders typically allow you to borrow up to 80-90% of your home's appraised value (Loan-to-Value ratio), minus what you currently owe on your mortgage.

• Formula: (Home Value × LTV%) - Current Mortgage = Available HELOC
• Example: $500,000 home × 85% LTV = $425,000 maximum loanable amount. Minus $200,000 mortgage = $225,000 available HELOC.

Key Benefits of HELOCs

• Flexibility: Borrow only what you need, when you need it
• Lower Rates: Typically lower interest rates than credit cards or personal loans
• Tax Benefits: Interest may be tax-deductible if used for home improvements (consult a tax advisor)
• Interest-Only Payments: During draw period, pay only interest on borrowed amount

Important Considerations

• Variable Rates: Most HELOCs have variable interest rates tied to the prime rate
• Closing Costs: Expect fees similar to a mortgage (appraisal, title search, etc.)
• Home Risk: Your home serves as collateral; failure to repay could lead to foreclosure
• Draw Period End: Be prepared for payment increases when repayment period begins

Disclaimer: This calculator provides estimates for educational purposes only. Actual loan terms, rates, and amounts are determined by individual lenders based on creditworthiness, property value, and other factors. Consult with a financial advisor or mortgage professional for personalized advice.