Behind the two gates this calculator applies is one formula worth seeing: your income-based limit isn't your monthly budget, it's that budget converted into a loan amount using the same present-value annuity math a lender uses to price any fixed payment. On a $500,000 home with a $300,000 balance, good credit, $9,000 monthly income and $2,000 of other debts, equity caps borrowing at $125,000 — well below the roughly $215,000 income alone would support.
How a monthly-income limit becomes a dollar loan limit
The equity gate is simple subtraction — the credit-tier CLTV ceiling times home value, minus what's owed. The income gate takes an extra step most explanations skip: it first finds how much new monthly payment fits under the debt-to-income ceiling, then converts that monthly figure into a principal using the standard loan annuity formula run in reverse, at the HELOC repayment rate and term.
That gap matters practically: raising income-side room (paying off a car loan, say) does nothing for this borrower, because equity is already the tighter limit. The DTI conversion only becomes the story when the two numbers are close, or when income is thin relative to a large, low-balance home — the classic equity-rich, income-light case the calculator's own notes call out for retirees.
Why a HELOC's payment jumps at year ten
A HELOC is modeled here in two distinct phases, not one loan. For the first 10 years — the draw period — this calculator charges simple interest on the balance with no principal reduction, so a $100,000 draw at an illustrative 8.5% costs about $8,500 a year, or roughly $708 a month, and the balance never shrinks on its own. At the end of the draw period the same $100,000 converts into a 20-year fully amortizing loan, and the payment resets to whatever principal-plus-interest that requires — about $868 a month at the same 8.5% rate. The jump from an interest-only $708 to a fully amortizing $868 is the exact mechanism behind the payment shock HELOC borrowers describe; it isn't a rate change, it's principal repayment starting for the first time.
A home equity loan skips that phase entirely — it fully amortizes over 15 years from day one, so at a comparable illustrative 8.0% the same $100,000 costs about $956 a month with no later jump, and roughly $72,000 of total interest over the term versus a HELOC's mix of interest-only and amortizing payments. The trade is the one the page above describes: certainty from month one against a lower cost if the balance is repaid quickly during the draw period.
Pricing the cash-out trade with a real rate
The cash-out comparison this calculator runs isn't the rate on the new money — it's the payment on the entire resulting mortgage against the payment on the loan being replaced. Freddie Mac's Primary Mortgage Market Survey for the week ending September 3, 2026 put the average 30-year fixed rate at 6.71%. Against a hypothetical existing $300,000 balance at 4% with 25 years left, refinancing that balance plus a $100,000 draw into a new $400,000, 30-year loan at 6.71% prices to a $2,584 monthly payment — versus $1,584 on the old loan alone, an increase of about $1,000 a month before a dollar of the new cash has done anything.
That $400,000-at-6.71% payment is the same figure this calculator's underlying 30-year amortization produces at any page that prices a loan at that rate and balance — it isn't specific to a refinance scenario, which is exactly why the comparison is fair: a cash-out refi is priced with the same math as any other 30-year mortgage, just against a larger, re-rated balance.
What the interest deduction actually covers now
IRS Publication 936 is direct on the point that trips people up most: "No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home." A HELOC or home equity loan used to pay off credit cards or fund a vacation is still secured by the house, but the interest on that portion is not deductible — only the share actually spent on the home qualifies, and that share has to be tracked separately from the rest of the draw.
The same publication also closes a door some borrowers still expect to be open: "The itemized deduction for mortgage insurance premiums has expired. You can no longer claim the deduction." Mortgage insurance — PMI on a conventional loan or MIP on FHA — is not deductible under current law regardless of which of the three products in this calculator's comparison you choose, or when the underlying mortgage insurance was placed.
Methodology
Borrowing-power figures are produced by this calculator's own two-gate formula: an equity-based ceiling from the credit-tier CLTV limit, and an income-based ceiling from the standard loan annuity formula run against the debt-to-income room under a 43% ceiling. HELOC, home equity loan and cash-out refinance payments use the same annuity formula at illustrative rates for the two second-lien products and Freddie Mac's published September 3, 2026 30-year average for the refinance leg. Deduction rules are quoted verbatim from IRS Publication 936.
Sources
- Freddie Mac — Primary Mortgage Market Survey — accessed 2026-09-05
- IRS — Publication 936, Home Mortgage Interest Deduction — accessed 2026-09-05