HELOC Calculator

Your HELOC limit depends on equity and the lender's max LTV:

The formula:

• HELOC Limit = (Home Value x Max LTV%) - Mortgage Balance
• Example: $500K home x 85% = $425K - $300K mortgage = $125K HELOC

Common LTV limits by lender type:

• Conservative banks: 80% combined LTV
• Most lenders: 85% combined LTV
• Aggressive lenders: 90% combined LTV
• Credit unions: Sometimes 90-95%

Factors that affect your limit:

• Credit score: 700+ gets highest limits and best rates
• Income/DTI: Must prove ability to repay
• Property type: Primary residence gets best terms
• Home value: Based on lender's appraisal, not your estimate

Example scenarios on $500K home:

• Owe $300K, 80% LTV: $100K HELOC
• Owe $300K, 85% LTV: $125K HELOC
• Owe $300K, 90% LTV: $150K HELOC
• Owe $200K, 85% LTV: $225K HELOC

This is the most important thing to understand about HELOCs:

During draw period (years 1-10):

• Borrow and repay freely up to your limit
• Minimum payment: Interest only
• $50K at 8.5% = $354/month (interest only)
• You're not reducing the balance with minimum payments

When draw period ends:

• No more borrowing allowed
• Must start repaying principal + interest
• $50K at 8.5% over 20 years = $434/month
• $50K at 8.5% over 10 years = $620/month
• Payment jumps 23-75% depending on repayment term

How to prepare for the transition:

• Start paying principal during the draw period (not just interest)
• Build an emergency fund to cover the higher payment
• Consider refinancing the HELOC to a fixed home equity loan before draw period ends
• If balance is manageable, ride it out with the higher payment

Options if you can't afford the new payment:

• Refinance the HELOC into a new HELOC (resets draw period)
• Convert to a fixed-rate home equity loan
• Cash-out refinance your first mortgage to pay off the HELOC
• Negotiate a modification with your lender

HELOC rates are variable and tied to the Prime Rate:

Rate structure:

• Your rate = Prime Rate + Margin
• Prime Rate: Currently ~8.5% (set by banks, follows Fed rate)
• Margin: 0% to 2% (based on your credit/LTV)
• Typical HELOC rate: 8.0% - 10.5%

When and how rates change:

• When the Fed raises/lowers rates, Prime follows immediately
• Your HELOC rate adjusts monthly or quarterly
• No refinance needed — rate changes automatically
• Most HELOCs have a lifetime cap (often 18%)

Rate increase impact on $50K balance:

• At 8.5%: $354/month (interest only)
• At 9.5% (+1%): $396/month (+$42)
• At 10.5% (+2%): $438/month (+$84)
• At 12.5% (+4%): $521/month (+$167)

How to protect yourself:

• Some HELOCs offer fixed-rate lock options (lock a portion at fixed rate)
• Pay down balance aggressively when rates rise
• Keep a buffer in your budget for 2-3% rate increases
• Consider converting to a fixed home equity loan if rates keep climbing

Both tap your home equity, but they work very differently:

HELOC (Line of Credit):

• Variable rate (changes with Prime)
• Draw as needed, repay, re-draw
• Interest-only payments during draw period
• Best for: Ongoing needs, flexibility, uncertain costs
• Risk: Rate increases, payment shock at repayment

Home Equity Loan (Second Mortgage):

• Fixed rate (never changes)
• Lump sum upfront
• Fixed monthly payments from day one
• Best for: One-time expense, predictability, budgeting
• Risk: Higher initial payment, less flexibility

Cost comparison on $50K borrowed:

HELOC at 8.5% variable:

• Draw period: $354/mo (interest only, 10 years)
• Repayment: $434/mo (P&I, 20 years)
• Total interest if rates stay flat: ~$61,000
• Total interest if rates rise 2%: ~$78,000

Home Equity Loan at 9.0% fixed:

• Payment from day one: $450/mo (P&I, 15 years)
• Total interest: $30,900
• Predictable. Done in 15 years.

Choose HELOC if: You need flexibility, may not use full amount, want low initial payments, comfortable with rate risk.

Choose Home Equity Loan if: You know the exact amount, want payment certainty, prefer a defined payoff date.

It depends on how you use the funds:

Tax-deductible (interest IS deductible):

• Home improvements: Kitchen remodel, new roof, addition
• "Buy, build, or substantially improve" your home
• Deductible on combined mortgage + HELOC debt up to $750K
• Must itemize deductions (not take standard deduction)

NOT tax-deductible:

• Debt consolidation (paying off credit cards)
• Buying a car
• Paying for vacation or education
• General living expenses
• Investment purchases (stocks, rental property)

Example:

• $50K HELOC used for kitchen remodel
• Annual interest at 8.5%: ~$4,250
• Tax deduction at 24% bracket: ~$1,020 tax savings
• Effective rate after deduction: ~6.5%

Important notes:

• Keep receipts proving funds were used for home improvements
• The $750K limit is combined with your first mortgage
• Consult a tax professional for your specific situation
• Rules changed with the 2017 Tax Cuts and Jobs Act

Yes — and it happened to millions of homeowners in 2008-2010:

When lenders can reduce or freeze your HELOC:

• Your home value drops significantly
• Your credit score drops substantially
• You miss payments on any debt
• Your financial situation materially changes
• Economic conditions deteriorate broadly

What "freeze" means:

• You can't draw any more funds
• Existing balance must still be repaid
• Essentially converts from line of credit to a loan
• Happened en masse during 2008 housing crisis

What "reduction" means:

• Your $100K credit line might be cut to $60K
• If you've drawn $50K, you still owe that
• But can only draw $10K more (vs $50K before)

How to protect yourself:

• Don't count on HELOC availability in an emergency — have cash reserves
• Draw what you need upfront if you're worried about freezes
• Keep your credit score high (750+)
• Don't max out the credit line
• Make payments on time — always