A home equity line of credit (HELOC) allows homeowners to borrow against the equity they’ve built up in their home. It works similarly to a credit card in that you have a set credit limit that you can draw from as needed. Then you only pay interest on the amount you actually use.
HELOCs come with variable interest rates, meaning the rate can fluctuate over time. So when shopping for a HELOC, it’s important to not only compare rates across different lenders but also understand how changes to the rate could impact your monthly payments.
This is where a HELOC calculator comes in handy. With a HELOC calculator, you can estimate your potential monthly payments at different interest rates. This allows you to determine the best overall rating for your situation.
How a HELOC Calculator Works
A HELOC calculator requires you to input a few key details:
- The amount you plan to borrow
- Your credit score
- The value of your home
- Your existing mortgage balance
- The HELOC’s term length
- The starting interest rate
With this information, the calculator will estimate your monthly payments during the draw period (when you can withdraw funds) and the repayment period (when you have to pay down the principal balance).
Most HELOC calculators also let you adjust the interest rate up or down to see how different rates would impact your monthly payments. This feature makes it easy to compare quotes from multiple lenders.
Here are the key factors the calculator considers:
Loan-to-Value (LTV) Ratio
Your LTV ratio compares the amount you owe on your home to its total value. Lenders generally limit HELOC borrowing to 70-80% of your home’s value minus your mortgage balance.
The calculator uses your home value, mortgage balance, and HELOC amount to ensure you stay within the lender’s LTV requirements.
Interest Rate
Since HELOCs have variable rates, the calculator will estimate your initial monthly payment based on the starting rate you input. You can then adjust this rate up or down to see how it affects your payments.
Pay close attention to how much your payment increases with every rate hike. This will give you an idea of how vulnerable your monthly budget would be if rates rise.
Amortization
During the draw period, HELOC payments only cover interest charges. Once the draw period ends, payments become amortized, meaning part of each payment goes toward the principal.
The calculator shows how this shift from interest-only to amortized payments will significantly increase your monthly amount due. Make sure you’re prepared for this change before getting a HELOC.
Term Length
Most HELOCs have a 10-year draw period followed by a 20-year repayment period. But some lenders may offer different terms.
Enter your actual draw and repayment term lengths so the calculator can accurately determine when your payments will become amortized.
READ ALSO: Understanding Fixed-Rate HELOCs: Your Comprehensive Guide
How to Use a HELOC Calculator to Compare Lenders
When shopping for a HELOC, getting rate quotes from multiple lenders is key to finding the best deal. Here are three steps to using a HELOC calculator for comparing offers:
1. Get Prequalified Online
Most lenders allow you to prequalify for a HELOC online with a soft credit check. This preliminary check gives you an estimate of the amount you may qualify for and sample interest rates.
Prequalify with several lenders to get a baseline for rate comparisons. Make note of each lender’s starting rate and fee structure.
2. Input Rates into the Calculator
Next, enter the starting interest rate from each lender into the HELOC calculator. Make sure all other factors (HELOC amount, home value, term length, etc.) stay the same.
The calculator will show your estimated monthly payment with each lender’s rate. You can also experiment by adjusting the rates up or down to project worst and best case scenarios.
3. Compare Monthly Payments
With the monthly amounts calculated for each lender, you can easily compare the impact of their different interest rates:
- Look at both the initial monthly payment and how much it increases percentage-wise with each rate hike.
- A lower starting rate isn’t necessarily best if that lender’s rates are volatile.
- Focus on the overall payment stability offered by each lender across various rate scenarios.
Look beyond just rates to also compare fees, which can significantly drive up your costs. Opt for the lender that provides the most affordable overall pricing for your situation.
What to Look for in a HELOC Calculator
All HELOC calculators aren’t created equal. Here are some key features that make a calculator most useful:
- Handles variable rates – It should allow you to adjust the interest rate up or down to project different payment scenarios.
- Payment projections – See monthly payments for both the draw and repayment periods.
- Amortization schedules – Review detailed amortization tables showing how much of each payment goes to interest vs. principal.
- Rate caps – Ability to set a max rate cap so payment projections stay realistic.
- Shareable results – Export or share your customized payment estimate.
- Mobile responsiveness – Calculator should work easily on desktop and mobile.
- Privacy – No need to share personal info or contact details to use it.
Bankrate’s HELOC calculator and the NerdWallet HELOC calculator have these key features that make them very useful for comparing lenders.
How Home Value Affects HELOC Amount
Since your home equity determines how much you can borrow with a HELOC, your home’s value is a major factor in qualifying and payment calculations.
Here’s how home value impacts the HELOC amount you may qualify for:
- Your home value sets the upper limit for your potential HELOC.
- The more equity you have, the larger HELOC amount you can get.
- To determine your equity, subtract your mortgage balance from your home value.
- Lenders limit HELOCs to 70-80% of your total equity, at maximum.
- A higher home value means you can qualify for a larger HELOC.
- Increasing home values over time allows you to borrow more in the future.
Tracking your home value can ensure you qualify for the ideal HELOC amount when you apply:
- Get a professional appraisal to establish your true market value.
- Check online home value estimators for a ballpark figure.
- Monitor neighborhood sales to see local market’s appreciation.
- Be conservative with estimates; lenders usually use lower appraisals.
- Talk to real estate agents for their professional opinion on your home’s current value.
HELOC Payment Calculator Tips
When using a HELOC calculator to estimate your potential monthly payments, keep these tips in mind:
- Use conservative estimates – Input conservative assumptions for home value, credit score, and interest rates to ensure your actual terms aren’t worse.
- Factor in taxes and insurance – Your monthly payment needs to cover taxes, insurance, and any other costs required by the lender.
- Mind the fees – Origination fees and closing costs increase your overall HELOC costs. Account for them in any calculations.
- Plan for variability – Remember that actual rates and payments can deviate from calculator estimates.
- Adjust for your situation – Tweak the assumptions as needed to reflect your specific details and financial goals.
- Use multiple calculators – Cross-check payment estimates using different HELOC calculators for a balanced perspective.
Getting HELOC payment estimates from multiple calculators can provide greater insight into the potential costs. Use the averages or lowest estimates for your budget planning.
HELOC Payment Calculator Examples
Here are two examples showing how borrowers can use a HELOC calculator to estimate payments at different interest rates:
Example 1
- HELOC Amount: $50,000
- Home Value: $300,000
- Mortgage Balance: $150,000
- Credit Score: 740
- Draw Period: 10 years
- Repayment Period: 20 years
- Starting Interest Rate: 5%
With a starting rate of 5%, the monthly payment would be $208 during the draw period. During repayment, it would become $384 per month.
If the rate increased to 6%, the monthly payment would rise to $250 during the draw period and $461 during repayment.
Example 2
- HELOC Amount: $80,000
- Home Value: $400,000
- Mortgage Balance: $200,000
- Credit Score: 720
- Draw Period: 15 years
- Repayment Period: 15 years
- Starting Interest Rate: 6.5%
At 6.5%, the initial monthly payment would be $433. When the repayment phase starts, the payment would jump to $875
Example 3
- HELOC Amount: $30,000
- Home Value: $250,000
- Mortgage Balance: $100,000
- Credit Score: 680
- Draw Period: 10 years
- Repayment Period: 20 years
- Starting Interest Rate: 6.25%
With a HELOC amount of $30,000, home value of $250,000, and existing mortgage of $100,000, the total available equity is $150,000. At a starting rate of 6.25%, the estimated initial monthly payment would be $156 during the 10-year draw period. Once the 20-year repayment phase begins, the monthly payment would increase to an estimated $288 to cover principal and interest.
Example 4
- HELOC Amount: $40,000
- Home Value: $325,000
- Mortgage Balance: $220,000
- Credit Score: 760
- Draw Period: 10 years
- Repayment Period: 15 years
- Starting Interest Rate: 5.5%
Based on the inputs, the total available home equity is $105,000. Since lenders limit HELOCs to 70-80% of total equity, the borrower could qualify for a maximum of around $80,000. With a $40,000 HELOC amount, the payment would be approximately $183 per month during the 10-year draw period at a 5.5% starting rate. When the 15-year repayment phase begins, the monthly payment would increase to $354.
How Credit Score Affects HELOC Rates
Your credit score plays a big role in the HELOC rate you’ll qualify for. Here’s an overview of how your credit score impacts interest rates:
- Higher credit score = lower rate – Lenders offer the best rates to borrowers with scores in the 740+ range. A score below 640 will mean higher rates or denial.
- Check all three credit bureaus – Make sure to check Equifax, TransUnion, and Experian since lenders may use a different score.
- Score factors that matter most – Payment history and credit utilization carry the most weight in determining your score.
- Minimum score for approval – Each lender sets their own cutoff, but most require at least a 620 score. Better rates need 700+.
- Monitor your credit – Keep tabs on your score leading up to your HELOC application so you have time to improve it.
- Dispute any errors – Incorrect or outdated information can negatively impact your score. Have it corrected.
- Pay down balances – Reducing credit card balances can significantly boost your score.
Using a HELOC calculator can show you how raising your credit score could mean lower interest rates and savings over the loan’s term. Even small differences in rates can really add up.
How Much Can You Borrow with a HELOC?
The amount you can borrow with a HELOC depends on how much equity you have available as well as the lender’s specific policies. Here are some key factors:
- Equity – Lenders allow you to borrow up to 70-80% of your total equity.
- Home value – A higher home value means having more equity available to tap.
- Mortgage balance – The lower your remaining mortgage, the greater equity you’ll have.
- Credit score – Borrowers with higher scores qualify for larger HELOC amounts.
- Debt-to-income ratio – Lenders limit your total debt payments to around 43% of income.
- Loan-to-value (LTV) ratio – Most lenders cap total borrowing at 80-90% of home value.
- Other liens – Second mortgages reduce how much equity you can borrow against.
For example, if your home is worth $400,000 and your current mortgage is $200,000, your total equity is $200,000. A lender may approve you for a HELOC up to 70% of that $200,000 equity, allowing you to borrow up to $140,000.
Always get pre-qualified to see the HELOC amount you may qualify for based on your specific financial situation.
HELOC Repayment Options
A major benefit of HELOCs is that they offer flexible repayment options:
Interest-only – During the draw period, you can make interest-only payments based on the amount you actually borrow.
Principal and interest – Once the draw period ends, payments become amortized to pay down the principal balance.
Fixed rate – Some lenders allow you to fix the rate on all or part of your balance so it doesn’t fluctuate.
Extended terms – After the standard 20-year repayment period, you may be able to extend the term further.
Prepayment – Most HELOCs allow you to pay down the principal early with no penalties.
Revolving credit – As you pay off your balance, that credit can be reused if needed.
Crunch the numbers with a HELOC calculator to decide which repayment approach saves you the most money based on your specific situation and financial goals.
HELOC Fees to Factor In
When estimating your total costs with a HELOC calculator, be sure to account for these common fees:
- Origination fee – Upfront fee to open the HELOC, typically around 1% of the credit limit.
- Application fee – Usually a flat fee of $50-100 just to apply for a HELOC.
- Appraisal fee – Cost for the lender to evaluate your home’s value, often $300-$500.
- Closing costs – Additional title and recording fees usually range from 2-5% of the loan amount.
- Annual fee – Some lenders charge an annual maintenance fee of $50 or more.
- Early termination fee – fee if you close the HELOC before the draw period ends, often a few hundred dollars.
- Transaction fees – Occasional small fees for account transactions and services.
Factor in all potential fees over the loan’s lifespan when determining the overall cost for comparison. HELOC costs can really add up.
Pros and Cons of HELOCs
HELOCs provide homeowners with an affordable way to access their home equity for various needs. But there are also some potential downsides.
Pros
- Lower interest rates – Rates are generally lower compared to credit cards or personal loans.
- Pay only for what you use – You only pay interest on amounts you draw, not the full credit limit.
- Tax deductible – The interest may be tax deductible if proceeds are used for home improvements.
- Build credit – Making on-time payments can help improve your credit score.
- Access equity – Tap into your home equity without having to sell or get cash-out refinancing.
- Consolidate debt – Pay off higher interest credit cards and loans.
Cons
- Variable rates – Monthly payments can fluctuate as interest rates change.
- Stricter qualification – HELOCs require good credit, equity, and income to qualify.
- Closing costs – Upfront fees usually range from 2-5% of the loan amount.
- Prepayment penalties – Some lenders charge fees if you repay early.
- Risk losing home – Failure to repay could lead to foreclosure.
- Rising payments – Payments increase after the draw period when the principal is due.
Always consult with a financial advisor to determine if a HELOC aligns with your overall financial goals and risk tolerance.
HELOC Tax Implications
One potential benefit of HELOCs is that they offer tax deductions for the interest paid in some cases. Here are the key tax implications:
- Interest for home improvements is deductible – If you use the HELOC for renovations or repairs, the interest is tax deductible.
- Investment property interest is deductible – Interest on a HELOC used for a rental or investment property can be deducted.
- Personal use interest is not deductible – Interest on HELOC funds used for other purposes cannot be deducted.
- Limits apply – Tax deduction rules limit the total amount of deductible interest each year.
- Consult with a tax professional to understand how to maximize deductions and avoid excess interest fees.
Keeping detailed records is key to claiming HELOC interest deductions – lenders usually provide annual tax statements detailing interest paid.
Alternatives to HELOCs
While HELOCs are one option for borrowing against home equity, there are some other approaches to consider:
Home Equity Loan – This provides a one-time lump sum at a fixed rate. This could make more sense if you know you need a certain amount upfront.
Cash-Out Refinance – Refinancing your mortgage lets you take cash out. This replaces your entire mortgage balance at a new rate and terms.
401(k) or IRA Loans – You may be able to borrow against your retirement savings without tax penalties or credit checks. However, this puts your nest egg at risk if you cannot repay the loan.
Life Insurance Loans – Loans against your policy’s cash value avoid credit checks but reduce your death benefit and accrue interest.
Pledged Asset Lines – These loans use your investment account as collateral. Rates are variable but usually lower than HELOCs or credit cards.
Reverse Mortgages – Allow seniors 62+ to access home equity without repayment as long as they live in the home. Must be repaid when the home is sold or vacated.
Credit Cards – Provide revolving credit access but come with higher variable rates compared to HELOCs. It is best for smaller or short-term borrowing needs.
Family Loans – Borrowing from family members or friends may provide low or no interest financing. But it can cause issues if not repaid as agreed.
Always weigh the overall costs, tax implications, risks, and your planned use of funds when deciding the best way to tap into your home equity. A HELOC calculator can help estimate your potential monthly payments across each option.
Final Thoughts on Finding the Best HELOC
HELOCs allow homeowners to unlock their equity for various uses. But make sure you take the time to find the right HELOC for your specific situation.
Getting pre-qualified by multiple lenders is key to comparing all your options. Be sure to use a HELOC calculator to estimate payments at different interest rates. Pay close attention to fees, credit score requirements, and other terms that impact costs.
While HELOCs offer homeowners flexibility and potential tax deductions, they also come with risks, like variable payments. Have a solid repayment plan and budget in place before moving forward with a HELOC.
With some savvy shopping and number crunching, a HELOC can provide affordable access to your hard-earned home equity. Just make sure you use online tools and calculators to find the best possible rate for your needs.
HELOC FAQs
How much can I borrow with a HELOC?
Most lenders will approve you for a HELOC amount up to around 70-80% of your total home equity. So if you have $100,000 equity after accounting for your mortgage, you may qualify for a HELOC of around $70,000 – $80,000.
How do I pay off a HELOC faster?
During the draw period, you can make extra principal payments to pay off your HELOC faster without prepayment penalties. Once the repayment period starts, you can shorten the term, choose a fixed rate, or continue making larger payments.
Are HELOC payments tax deductible?
If you use the HELOC funds for home improvements or repairs, that interest is usually tax deductible. For other uses, the interest is generally not deductible.
What credit score is needed for a HELOC?
Most lenders require a minimum credit score between 620-650 to qualify for a HELOC. But a score of 720+ is ideal for the best rates. Check your score well in advance and take steps to improve it before applying.
Can a HELOC be transferred to a new home?
In most cases, yes – your HELOC can be transferred to a new home when you move. Usually, you would pay off the old HELOC with the proceeds from selling that property, then apply for a new HELOC secured by the new home.
In another related article, Home Equity Line of Credit: A Comprehensive Guide to HELOCs
