About home equity lines of credit
A home equity line of credit, or HELOC, is a special type of home equity loan. Rather than borrowing a specific sum of money and repaying it, a HELOC allows you to borrow money as needed, up to a certain limit, and repay it over time. It's like having a credit card secured by your home equity.
All home equity loans are secured by the equity in your home – that is, you're using your home equity as collateral. That allows you to get a much lower interest rate than you can get with a credit card or other unsecured loan. And because home equity loans are a type of mortgage, the interest you pay is tax-deductible up to certain limits.
A HELOC has two phases. A draw period, during which you can borrow money as you wish, up to the predetermined limit (your line of credit), and a repayment period, during which you must repay the loan principle you've accumulated. HELOCs are usually set up as adjustable-rate loans during the draw period, but often convert to a fixed-rate during the repayment phase.
The draw phase is usually 5-10 years. During this time, you're only required to make interest payments on the money you've borrowed. The repayment phase is typically 10-20 years and you cannot borrow additional funds during this time. However, some borrowers choose to refinance into a new HELOC at the end of the draw period to keep their line of credit open.
How much can you borrow with a HELOC?
The amount you can borrow with any home equity loan is determined by how much equity you have – that is, the current value of your home minus the balance owed on your mortgage. So if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
That doesn't mean you'll be able to borrow up to $100,000, though. Few, if any, lenders these days will allow you to borrow against the full amount of your home equity, although that was common during the pre-crash days.
As a rule of thumb, lenders will generally allow you to borrow up to 80-90 percent of your available equity, depending on your credit and income. So in the example above, you'd be able to establish a line of credit of up to $80,000-$90,000 with a HELOC.
Of course, the line of credit you can set up will vary depending on the value of your home and the balance on your mortgage (including any second mortgages, if applicable). That's where this calculator comes in.
Using the Home Equity Available Credit calculator
This calculator makes it easy to determine what you can borrow, as well as showing how that amount would vary if the appraised value of your home is more or less than you expect.
To use it, enter the estimated value of your home, the amount owed on your mortgage and any second liens, and the maximum loan-to-value ratio allowed by your lender in the boxes indicated. The line of credit available to you will be displayed in the blue box at the top.
Notice that you can vary these figures using the sliding green triangles on the chart if you want to explore a range of values.
The chart with the three colored lines shows you how your available line of credit would vary across a range of appraised home values, given the figures you entered into the calculator. The lines correspond to the loan-to-value ratio your lender will allow.
The calculator automatically displays lines corresponding to ratios of 80%, 90% and 100%; it can also display one additional line based on any value you wish to enter. For example, if your lender will allow a 95% ratio, the calculator can draw that line for you, in addition to the other three.
The range of home values are listed along the bottom and are centered on the value you entered; the figures for the available line of credit are listed at left on the vertical axis.
Want to see what sort of rate you can get on a HELOC? Use the "Get Free Quote" tab at the top of this page.