HELOC
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Home Equity
HELOC Calculator
Enter your home value, mortgage balance, and desired credit line to calculate your maximum available HELOC, draw period interest-only payments, repayment period full principal + interest payments, payment shock risk, and total interest cost. The comparison tab puts HELOC against a home equity loan so you can choose the right product for your situation.
HELOC Calculator
Home Equity
HELOC Terms
️ Disclaimer: HELOC rates are variable and can change. Your home is collateral - failure to repay can result in foreclosure. Consult a financial advisor.
⚖️ HELOC vs Home Equity Loan
Two main ways to borrow against your home equity - each works differently.
| Feature | 🔵 HELOC | 🟢 Home Equity Loan |
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HELOC vs HE Loan - Your Numbers
Run the calculator first to see personalised comparison.
How HELOC Works
What is a HELOC?
A HELOC (Home Equity Line of Credit) is a revolving
credit line secured by your home equity.
Like a credit card - but secured by your home:
- Borrow up to your credit limit during draw period
- Pay back and borrow again (revolving)
- Variable interest rate (usually Prime + margin)
- Your home is collateral
How Much Can You Borrow?
Step 1: Calculate your home equity
Equity = Home Value - Mortgage Balance
Step 2: Apply lender CLTV limit (typically 80-85%)
Max CLTV = Home Value x 85%
Max HELOC = (Home Value x 85%) - Mortgage Balance
Example:
Home Value: $550,000
Mortgage: $320,000
Max at 85% CLTV: $550,000 x 85% = $467,500
Max HELOC: $467,500 - $320,000 = $147,500
Draw Period Payments (Interest-Only)
Monthly Interest = Balance x (Rate / 12)
Example: $80,000 at 8.5%
Monthly Interest = $80,000 x (8.5% / 12)
= $80,000 x 0.007083
= $566.67/month
During draw period, minimum payment = interest only.
You can pay more to reduce principal.
Balance stays at drawn amount if only interest paid.
Repayment Period Payments (P&I)
At end of draw period:
- No new draws allowed
- Balance fully amortises over repayment period
Monthly P&I = Balance x [r(1+r)^n] / [(1+r)^n - 1]
Where r = monthly rate, n = repayment months
Payment shock example:
Draw period (interest-only): $566/month
Repayment period (P&I 20yr): $693/month
Payment increase: +$127/month (+22%)
Variable Rate Risk
HELOCs are typically Prime Rate + Margin
Prime Rate (May 2025): ~8.50%
Typical HELOC margin: 0% to 2%
If Prime rises +2%:
Current payment: $566/month
After +2% rate: $700/month (+24%)
To manage rate risk:
- Make extra principal payments during draw period
- Some lenders offer rate lock on portion of balance
- Consider fixed-rate home equity loan instead
Frequently Asked Questions
A HELOC (Home Equity Line of Credit) is a revolving credit line secured by your home equity - like a credit card backed by your house. It has two phases: (1) Draw period (5–15 years): borrow as needed, repay, and borrow again. Minimum payments are usually interest-only. Rate is variable. (2) Repayment period (10–20 years): credit line closes. Balance is repaid with full principal + interest payments over the remaining term. Rate remains variable unless converted. Your home is collateral - failure to pay can result in foreclosure.
Max HELOC = (Home Value × CLTV%) − Existing Mortgage Balance. CLTV limit is typically 80–85%. Example: $550,000 home, $320,000 mortgage, 85% CLTV. Max HELOC = (550,000 × 0.85) − 320,000 = $147,500. Additional requirements: typically 620+ credit score, verifiable income, and at least 15–20% equity. A lower credit score may reduce the CLTV limit offered. If home value falls, your available HELOC may be frozen or reduced by the lender.
Payment shock is the jump in minimum monthly payment when the draw period ends and repayment begins. During the draw period, you pay only interest (e.g., $80K at 8.5% = $567/month). When repayment starts (20-year term), the payment rises to include principal: approximately $694/month - a $127/month increase. If rates have risen during the draw period, the jump is even larger. To mitigate: make extra principal payments during the draw period, reducing the balance before repayment begins. Use the calculator above to see your specific payment shock.
HELOC: revolving credit line, variable rate, draw as needed during draw period, interest-only minimum payments. Flexible but rate-risky. Best for ongoing expenses or uncertain amounts. Home equity loan: fixed lump sum upfront, fixed interest rate, fixed monthly P&I payment from day one. Predictable but less flexible. Best for a single known expense. Both use your home as collateral. HELOC currently tends to have a lower initial rate but significant rate risk. Home equity loan provides payment certainty.
HELOC interest is deductible only if funds are used to buy, build, or substantially improve the home that secures the HELOC. Under the Tax Cuts and Jobs Act (2018–2025): deductible for capital home improvements (kitchen remodel, addition, new roof) on the securing property. NOT deductible for: debt consolidation, cars, tuition, vacations, medical expenses. Must itemise deductions (not take standard deduction). Combined mortgage + HELOC deduction limit: $750,000. Consult a tax professional for your specific situation as rules are complex and have changed multiple times.
(1) Variable rate risk - rates can rise significantly. A $100K HELOC at 7% = $583/month interest-only. At 10% = $833/month. (2) Your home is collateral - default can lead to foreclosure, unlike unsecured debt. (3) Payment shock at draw period end. (4) Lender freeze risk - if your home value declines or credit score drops, lender can freeze or reduce your available credit even after approval. (5) Overborrowing temptation - accessible revolving credit can be psychologically difficult to manage. (6) Impact on home equity - every dollar borrowed reduces the equity you'd receive in a sale.
Yes - you can make extra principal payments at any time during both the draw and repayment periods, reducing your balance faster and lowering future interest costs. Most HELOCs have no prepayment penalties after a brief initial period (typically 2–3 years from origination). Check your agreement for specific terms. Extra principal payments during the draw period are particularly valuable: they reduce the outstanding balance at repayment start, which lowers the payment shock amount and reduces total interest over the full loan term. The calculator above shows how your repayment payment changes based on the balance you carry into repayment.
CLTV (Combined Loan-to-Value) = (First Mortgage Balance + HELOC) ÷ Home Value. Lenders use CLTV to cap total debt secured by your home. Most set limits at 80–85%. Lower CLTV means lower risk to the lender and typically better rates. Example: 80% CLTV on $550,000 home means max total debt of $440,000. With $320,000 mortgage: max HELOC = $120,000. At 85%: max HELOC = $147,500. If your home value falls during the HELOC term, your CLTV rises - lenders may freeze the unused portion of your credit line if the calculated CLTV exceeds their policy threshold.
HELOC Calculator - How Home Equity Lines of Credit Work and What They Actually Cost
A HELOC can be one of the most cost-effective ways to borrow money - or one of the most dangerous financial tools a homeowner can use. The difference comes down to understanding how the two phases work, how variable rates change the payment over time, and what "payment shock" looks like in practice. This calculator makes all of that concrete before you sign anything.
Quick example: $600,000 home, $350,000 mortgage. At 85% CLTV limit: Max HELOC = (600,000 × 0.85) − 350,000 = $160,000. Borrow $100,000 at 8.5% variable rate. Draw period (10 yrs, interest-only): $708/month. Repayment period (20 yrs): $868/month. Payment jump at repayment start: +$160/month. Total interest over full 30-year term: approximately $123,000.
The Two Phases of a HELOC - Draw vs Repayment
Every HELOC has two distinct periods that behave very differently:
Draw Period (Typically 5–15 Years)
- Access the credit line as needed - withdraw, repay, withdraw again
- Minimum payment is usually interest-only
- Your balance can fluctuate month to month
- Rate is variable - typically Prime Rate + margin (1–2%)
- When Prime rises, your payment rises automatically
- Making extra principal payments during draw reduces payment shock
Repayment Period (Typically 10–20 Years)
- Credit line closes - no more withdrawals
- Balance at end of draw period is frozen and fully amortised
- Full principal + interest payments required each month
- Payment jumps significantly from interest-only minimum
- Rate is still variable unless you convert to fixed
- Lump sum "balloon" payment required at some HELOCs' end
HELOC vs Home Equity Loan - Choosing the Right Product
Both products let you borrow against home equity, but they serve different financial situations:
- Choose a HELOC when: you have an ongoing or uncertain need (home renovation in phases, tuition spread over years, a business that needs intermittent capital), you want flexibility to borrow and repay as needed, or you think rates may fall in the near future.
- Choose a Home Equity Loan when: you have a single known expense (debt consolidation, a specific renovation), you value payment certainty and a fixed monthly payment from day one, or you're concerned about rising rates and want to lock in a fixed rate now.
- The critical HELOC risk: variable rates. A HELOC opened at 7% can become 10%+ if the Federal Reserve raises rates. Your draw period payment on $100,000 would jump from $583/month to $833/month - a $250/month increase on an "interest-only minimum."
How CLTV Determines Your Maximum HELOC
CLTV (Combined Loan-to-Value) = (First Mortgage + HELOC) ÷ Home Value. Lenders cap total debt against your home at a set CLTV - usually 80–85%. This protects against over-leverage:
- At 80% CLTV limit: $500,000 home × 80% = $400,000 max total debt. With a $280,000 mortgage: max HELOC = $400,000 − $280,000 = $120,000
- At 85% CLTV limit: $500,000 × 85% = $425,000 max. Same mortgage: max HELOC = $145,000
- If your home value falls: available equity shrinks and lenders can freeze or reduce your HELOC - even one you've already been approved for. This happened to many homeowners during the 2008 financial crisis.
CLTV is one reason many financial advisors recommend not borrowing the full HELOC maximum - maintaining a buffer below the CLTV limit protects against lender freezes if property values decline.
Is HELOC Interest Tax Deductible?
HELOC interest deductibility is one of the most misunderstood tax rules among homeowners. Under the Tax Cuts and Jobs Act (2018–2025 tax years), HELOC interest is deductible only if the borrowed funds are used specifically to buy, build, or substantially improve the home that secures the loan. Key points:
- Deductible uses: kitchen remodel, addition, roof replacement, new HVAC - major capital improvements to the same home that secures the HELOC
- Not deductible: credit card debt consolidation, car purchase, college tuition, medical bills, vacation - any non-home improvement use
- The deduction applies to combined mortgage + HELOC debt up to $750,000 ($375,000 for married filing separately)
- You must itemise deductions (not take the standard deduction) to claim this
- If you use part of the HELOC for home improvement and part for other purposes, only the home-improvement portion qualifies
Consult a tax professional for guidance specific to your situation - the deductibility rules have changed over time and are subject to further legislative changes.
How this calculator works, and where the numbers come from
The HELOC Calculator applies the standard formula for this calculation to the values you enter and updates the result as you type. The calculation itself happens in your browser, and the page explains the method so you can check any result by hand.
Please note: Results are estimates. Lender terms, local taxes and fees vary, so confirm figures with your lender or a qualified adviser.
Sources and further reading
- Consumer Financial Protection Bureau - Owning a Home
- U.S. Department of Housing and Urban Development
Learn more
Read our guide: How EMI Is Calculated, With a Full Worked Loan Example