Estimate your credit line from home equity, plus draw-period and repayment payments.
How a HELOC works: draw vs. repayment
A home equity line of credit works like a credit card secured by your house. During the draw period (typically 10 years) you borrow and repay flexibly with interest-only payments. Then the repayment period begins (often 15 years) with amortized principal-and-interest payments.
How much can you borrow? Understanding LTV
Lenders cap total secured debt at ~80% of appraised value. Formula: (home value × max LTV) − mortgage owed = credit line. On $500,000 with $300,000 owed at 80% LTV: $100,000.
The variable-rate warning
Almost all HELOCs charge variable rates tied to prime. Ask for the lifetime cap and worst-case payment before signing. If your budget can’t absorb a 2–3 point rise, a fixed home equity loan may be safer.
How much can I borrow with a HELOC?
Typically up to 80% of appraised value minus mortgage balance — about $100,000 on a $500,000 home owing $300,000.
What is the interest-only draw period?
Usually the first 10 years: borrow and repay flexibly, paying only interest on drawn balances. Then ~15 years of P&I repayment.
Is HELOC interest tax-deductible?
Only if funds buy, build, or substantially improve the securing home, and only if you itemize. Consult a tax advisor.
HELOC vs. home equity loan?
HELOC: flexible reusable credit, variable rate. Home equity loan: lump sum, fixed rate, payment certainty.
What if my home value drops?
Lenders can freeze or reduce your line. Borrowing well under your maximum protects against this.
How to use this calculator
A HELOC has two distinct phases — the draw period and the repayment period — so the calculator needs inputs for both. Fill them in this order:
- Home value. Your best estimate of the current appraised value, not the purchase price. A recent comparable sale on your street or a professional appraisal is far more reliable than an automated online estimate.
- Current mortgage balance owed. What remains on your first mortgage. The calculator subtracts this from your allowable equity to find your credit line.
- Maximum LTV. Lenders typically cap total secured debt at 80% of appraised value. The default 80% is the industry standard; some lenders allow 85–90% at higher rates. The formula is: (home value × max LTV) − mortgage owed = credit line.
- Interest rate. The variable rate you have been quoted, usually expressed as prime plus a margin. Because HELOC rates move with prime, also note the lifetime cap from your disclosure.
- Draw period length. Usually 10 years: the window when you can borrow, repay, and re-borrow, typically with interest-only minimum payments.
- Repayment period length. Usually 15 years after the draw period ends: borrowing stops and the balance amortizes with principal-and-interest payments.
Understanding your results
- Max credit line. The maximum the lender is likely to extend, from the LTV formula — the headline number. Borrowing well under this maximum protects you if the lender freezes or reduces the line during a downturn.
- Draw-period payment (interest-only). The interest-only minimum computed on the full credit line — the cheapest your monthly cost will ever be. Budgeting only this number is the classic HELOC trap.
- Repayment payment (P&I). The fully amortized principal-and-interest payment once the draw period ends. This is the number your long-term budget must absorb — it is typically 30–50% higher than the interest-only payment on the same balance.
- Home equity. Your total equity (home value minus mortgage owed) — the raw material the line is drawn from.
- Equity remaining after max line. The cushion left untouched if you borrowed the full line. Lenders like to see a buffer here; a thin cushion means any price dip could freeze your line.
Worked example
A homeowner’s house is worth $500,000 with $300,000 owed on the first mortgage. At 80% maximum LTV the estimated credit line is $100,000 (($500,000 × 0.80) − $300,000). At a variable rate currently 8.50%, with a 10-year draw and 15-year repayment:
- Draw-period payment (interest-only on the full line): $708.33/month ($100,000 × 8.50% ÷ 12)
- Repayment-period payment (15-year amortization): $984.74/month
- Home equity: $200,000; equity remaining after max line: $100,000
The lesson: the $708 interest-only payment is temporary by design. Underwrite yourself on the $985 repayment figure — and remember that as a variable-rate product, both numbers rise if prime rises.
Frequently asked questions
Should I pay principal during the draw period?
You are only required to pay interest, but every principal dollar you send during the draw period is a dollar you will not amortize later at a possibly higher rate. Borrowers who treat the draw period as interest-only for the full ten years face the maximum payment shock when repayment begins.
Can I lock a fixed rate on part of my HELOC?
Many lenders offer a fixed-rate lock option letting you convert a portion of the drawn balance to a fixed rate and fixed payment, similar to a mini home-equity loan inside the line. Ask whether your product includes it and whether each lock carries a fee — it is the cheapest hedge against rising prime.
Are there annual fees or minimum draw requirements?
Often yes. Common terms include a $50–$75 annual fee, a minimum initial draw ($10,000 is typical), and sometimes a minimum balance to keep the line open. These are disclosed in the account agreement but rarely in the advertised rate — read the fee schedule before comparing offers.
How quickly can I access HELOC funds?
From application to funding is typically 2–6 weeks: valuation, underwriting, and a three-day right-of-rescission period on primary residences. After that, draws are usually instant via online transfer or checks — that on-demand access is the product’s main advantage over a lump-sum loan.
Can I use a HELOC as a down payment on another property?
Lenders allow it, but the second property’s mortgage lender will count the HELOC payment in your debt-to-income ratio, which can torpedo the new approval. It also concentrates leverage on your primary home. Investors do it routinely; first-time buyers should model the combined payments carefully first.