HELOC Calculator

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home's equity. It works like a credit card — you have a maximum credit limit, you can draw from it as needed during the draw period (typically 5–10 years), repay it, and draw again. Unlike a home equity loan (which provides a lump sum), a HELOC lets you borrow only what you need, when you need it, and you only pay interest on the outstanding balance. After the draw period ends, the HELOC enters the repayment period (typically 10–20 years), during which you can no longer borrow and must repay both principal and interest on the outstanding balance. Most HELOCs have variable interest rates tied to the Wall Street Journal Prime Rate plus a lender margin.

A HELOC is a revolving line of credit with a variable rate — flexible, but payments fluctuate with interest rates. A home equity loan (also called a second mortgage) provides a lump sum at a fixed rate with fixed monthly payments. Use a HELOC when you have ongoing or uncertain funding needs (home renovation over multiple years, emergency fund, education expenses). Use a home equity loan when you need a specific amount for a defined purpose and want payment predictability (paying off high-interest debt, financing a one-time large expense). Both are secured by your home and carry foreclosure risk. Home equity loans typically have slightly higher rates than HELOCs at origination, but the fixed rate provides protection against rate increases.

Your borrowing capacity depends on your home's value, your outstanding mortgage balance, and your lender's maximum Combined Loan-to-Value (CLTV) ratio. The formula is: Maximum HELOC = (Home Value × Max CLTV%) − Mortgage Balance. For example: $500,000 home × 80% CLTV = $400,000 max combined debt; $400,000 − $300,000 mortgage = $100,000 maximum HELOC. Most conventional lenders cap CLTV at 80%–85%. Some credit unions and online lenders allow up to 90%. Other factors that limit your HELOC: credit score (typically minimum 620–680), debt-to-income ratio (most lenders want DTI below 43%), and income documentation. An actual appraisal may value your home differently than your estimate, which directly affects the credit line.

Most lenders require a minimum credit score of 620 for HELOC approval, though 680+ is more typical for competitive rates. The best HELOC rates generally require 720+. Beyond credit score, lenders evaluate: combined loan-to-value ratio (total mortgage + HELOC ÷ home value), debt-to-income ratio (total monthly debt payments ÷ gross monthly income — most lenders cap at 43%), payment history on your existing mortgage, and income stability. If your score is below 680, consider paying down existing debt to improve your DTI, making on-time payments for 6–12 months, and disputing any errors on your credit report before applying.

HELOC interest is potentially tax deductible under the Tax Cuts and Jobs Act (TCJA) of 2017, but only under specific conditions. Since 2018, HELOC interest is deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan. If you use HELOC funds for personal expenses (vacations, car purchases, debt consolidation), the interest is no longer deductible. This represents a major change from pre-2018 rules, when HELOC interest was deductible on up to $100,000 regardless of use. Additionally, the total deductible mortgage debt (first mortgage + HELOC) is capped at $750,000 for new loans (loans originated after December 15, 2017). Always consult a tax professional to confirm deductibility in your specific situation.

Key HELOC risks include: (1) Variable rate risk — most HELOCs are indexed to the Prime Rate; a 2–3% rate increase adds hundreds of dollars per month to your payment; (2) Payment shock — repayment period payments are often 2–3× higher than draw period interest-only payments, and many borrowers are unprepared for this jump; (3) Foreclosure risk — your home is collateral, and lenders can foreclose if you default; (4) Credit freeze risk — lenders can reduce or freeze your HELOC during economic downturns or if your home value declines, even if you've been making payments; (5) Overborrowing — the ease of access can lead to borrowing for non-essential expenses, creating a cycle of debt secured by your home; (6) Closing costs and fees — application fees, appraisal costs, title fees, and annual fees can add up to $2,000–$5,000 upfront.