What is Home Equity Line of Credit (HELOC) and calculate how much you may be able to borrow
A Home Equity Line of Credit (HELOC) is a type of revolving loan that allows homeowners to borrow against the equity in their home. This type of loan is secured by the borrower's property and is often used to finance major expenses such as home renovations, college tuition, or debt consolidation.
HELOCs work similarly to credit cards, in that they have a credit limit and borrowers can draw on the line of credit as needed. The borrower is only required to pay interest on the amount of the line of credit that has been used, and payments are typically interest-only during the draw period, which is usually 10 years.
During the draw period, the borrower can make withdrawals and repayments as needed, up to the credit limit. Once the draw period ends, the repayment period begins, and the borrower is required to pay back the full amount of the loan, which can be done over 10-20 years.
The calculator above uses home value, outstanding balance, Loan-to-Value ratio, and credit score to estimate the amount of credit that is available through a HELOC.
The formula for estimating the amount of credit eligible to borrow, given an LTV of at most 80% and credit score greater than 620, is:
Eligible to Borrow = Home Value * 80% - Outstanding Balance
The maximum amount that a borrower can borrow through a HELOC is dependent on several factors, including but not limited to:
While a HELOC calculator can be a helpful tool, there are several factors to consider when deciding whether a HELOC is the right financial product for your specific situation.
A Home Equity Line of Credit (HELOC) is a type of revolving loan that allows homeowners to borrow against the equity in their home. HELOCs work similarly to credit cards, in that they have a credit limit and payments are interest-only during the draw period. The amount of credit available is determined by the borrower's credit score, income, and the amount of equity in their home.
HELOCs offer several advantages, such as lower interest rates, flexibility, and tax benefits. However, they also come with risks, such as the potential for foreclosure, fluctuating interest rates, and fees. It's important for borrowers to weigh the pros and cons of a HELOC carefully and to make sure they have a solid plan for repaying the loan.