Home Equity Line of Credit (HELOC) Calculator

A home equity line of credit is a revolving second lien sized by combined loan-to-value. The capacity test is Available = Home Value x CLTV Limit - Existing Mortgage Balance, with most lenders capping CLTV at 80 to 85 percent and a few going to 90 percent for strong files. On a 400,000 dollar home with a 250,000 dollar first mortgage and an 85 percent limit, that leaves 90,000 dollars. Underwriting typically also wants a FICO score around 680 or better and a debt-to-income ratio under 43 percent. The line then runs in two distinct phases, which is why a HELOC produces two very different payment figures. During the draw period, commonly 5 to 10 years, the required payment is interest only: Balance x Rate / 12. During the repayment period, commonly 10 to 20 years, the balance fully amortizes at PMT = P x r(1+r)^n / ((1+r)^n - 1). That transition is the central risk. A 50,000 dollar balance at 8.5 percent costs about 354 dollars a month interest only, then roughly 434 dollars amortizing over 20 years - and far more if the repayment window is shorter. Rates are almost always variable, quoted as the Wall Street Journal prime rate plus a margin, so a 1 point move changes the interest-only payment on 50,000 dollars by about 42 dollars a month. The line is secured by the residence, so default risk is foreclosure risk, and lenders retain contractual authority to freeze or reduce an unused line if property values fall or credit deteriorates. Since the Tax Cuts and Jobs Act of 2017, interest is deductible only when proceeds buy, build, or substantially improve the securing home, within a 750,000 dollar total acquisition debt limit.

Home equity borrowing in the United States was reshaped by the Tax Reform Act of 1986, which phased out the deduction for consumer interest on credit cards, auto loans, and personal loans while preserving deductibility for interest on debt secured by a residence. Lenders responded within months by marketing revolving equity lines as a tax-favored substitute for unsecured consumer credit, and HELOC balances grew rapidly through the late 1980s. Complaints about teaser rates, unexplained margins, and lines being closed without notice followed quickly. Congress answered with the Home Equity Loan Consumer Protection Act of 1988, which added section 1637a to the Truth in Lending Act and created the disclosure regime now found in Regulation Z section 1026.40: lenders must give an application-time disclosure of the index and margin, payment terms for both draw and repayment phases, a 15-year historical example, and must limit the circumstances in which a line may be frozen or the limit reduced. The Federal Reserve's booklet What You Should Know About Home Equity Lines of Credit accompanies applications, a duty later transferred to the Consumer Financial Protection Bureau in 2011. HELOC volume peaked in the 2004 to 2006 housing boom, and large numbers of lines were frozen in 2008 and 2009 as values fell. The 2017 tax act narrowed deductibility to home improvement uses, and the LIBOR wind-down completed in 2023 left the prime rate as the standard index for new lines.