Calculate your Home Equity Line of Credit borrowing power, payments, and costs. Works for USD, EUR, GBP, CAD, AUD, and other currencies.

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The first calculator above is designed to compute the monthly payments and costs of a HELOC loan. The second calculator estimates how much a borrower may qualify for based on the home’s value, the outstanding mortgage balance, and the loan-to-value (LTV) ratio acceptable to lenders. Both calculators are primarily intended for use by U.S. residents.

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. A HELOC is one way that enables homeowners to borrow money using the equity in their homes. A HELOC differs from a conventional loan in that the borrower is not taking out a lump sum of money upfront, but instead takes out money as needed, with the total no more than the credit limit, somewhat similar to a credit card. The term of a HELOC is split into two distinct periods the draw period and the repayment period:

• Draw period: The draw period is the first phase of a HELOC. During this period, you can withdraw funds as needed up to the credit limit. Most lenders only require monthly interest payments on the outstanding balance during this period. In this period, the borrower can draw down funds, repay, and redraw again as many times as they wish. It typically lasts 5 to 10 years.
• Repayment period:After the draw period ends, the HELOC enters the repayment period. In this period, borrowers can no longer withdraw funds. The monthly payments include both the principal and interest, similar to a conventional loan. This period typically last 10 to 20 years.

A HELOC often has a relatively low interest rate compared with other loans since it is secured by your home. On the other hand, since a HELOC is a revolving credit, its interest rate often varies over time. The variable rate is calculated from the index plus a margin. This introduces uncertainty for the borrower in the long run.

Since a HELOC uses your home as collateral, lenders usually limit the line of credit based on the value of the property. Most lenders set the borrowing upper limit to be no more than 80% or 85% of the home’s value minus the existing mortgage balance. For example, if a home is valued at $500,000 and the outstanding mortgage balance is $210,000, the line of credit with a borrowing limit of an 80% loan-to-value ratio (LTV) would be: $500,000 × 80% – $210,000 = $190,000. In addition to LTV requirements, most lenders also impose absolute caps on HELOCs, typically $1 million.

Besides house value, lenders also consider other factors for HELOC qualifications, such as the borrower’s credit history. In the U.S., applicants with a credit score below 630 may not qualify for a HELOC. Also, other debts of the borrower might affect qualification. Lenders typically won’t approve a HELOC for borrowers with a high debt-to-income ratio, such as 50% or 43%. In addition, the condition of the house, existing liens on the house, insurance, and many other factors might affect qualifications.

Costs associated with a HELOC

Inevitably, borrowing comes with costs. A HELOC comes with two main types of costs: upfront/closing costs and ongoing costs.

The upfront/closing costs typically include origination fees, appraisal fees, document fees, title search costs, etc. They are one-time costs and can easily amount to thousands of dollars or 1-5% of the loan amount. Many lenders offer no-closing-cost HELOC and roll these fees into the loan balance, paid via a higher interest rate and/or early termination fees.

The ongoing costs mostly refer to annual fees and interest recurring over time. Many HELOCs charge an annual fee to keep the account open during the draw period. Some may also charge account maintenance fees or transaction fees for each withdrawal.

The various upfront costs, variable interest rates of different lenders, and different lengths of draw and repayment periods make it very hard to compare loans. Our calculator above has the option of including the upfront costs and annual fees in the calculation. The results can give a more comprehensive view of the borrowing. The Annual Percentage Rate (APR) in the calculation result is the annualized cost of borrowing money, including the interest, the closing costs, and the annual fee. It is a more accurate number to compare offers with different terms from different lenders, considering both the interest rate and other costs.

Usage and alternatives to HELOC

While borrowing money adds a financial burden, people often need funds due to various financial situations. A HELOC has a draw period. You can take out money as you need during this period. Therefore, it has flexibility for paying ongoing costs, such as college tuition or home remodeling. It helps you borrow the amount needed neither overborrowing nor underborrowing. But a HELOC normally has a variable interest rate, which creates financial uncertainty during repayment. Also, a HELOC only requires interest payments in the draw period but requires payment of both principal and interest in the repayment period. It pushes the hefty financial burden of repayment into the future.

Besides being flexible, another reason people choose to borrow with HELOCs is because they have relatively low interest rates and low borrowing costs since they are backed by your home. Comparatively, there are other options available when you need funds and that can also be backed by your home to get relatively low interest rates:

• Home equity loan: A home equity loan (also called a second mortgage) is a one-time installment loan that lets you borrow using your home as collateral. The borrower receives a lump sum upfront and repays it over a fixed term with fixed monthly payments in most cases. Typically, the interest rate of a home equity loan and the monthly repayment amount are fixed. Compared with a HELOC, this gives the borrower a more predictable repayment schedule. Please use our home equity loan calculator to make comparisons with a HELOC.
• Cash-out refinance: A cash-out refinance replaces your primary mortgage with a loan larger than your existing balance. You can take out some cash for your needs after closing. This option is good when the current market interest rate is lower than your existing mortgage interest rate. Also, the refinanced mortgage loan interest qualifies for itemized income tax deduction, while the interest of HELOCs or home equity loan does not always qualify.

Overall, a HELOC is a relatively low-cost and flexible option of borrowing money for those who need it. However, like any loan, it is a financial burden to the borrower with hefty costs and should be used carefully. Especially the variable interest and two different payback periods bring financial uncertainty. If not used properly, it can put your homeownership in danger and lead to a financial crisis.