CalculatorWhat Is a HELOC?
A home equity line of credit, or HELOC, is a revolving credit line secured by the equity in your home. Rather than receiving a single lump sum, you are approved for a maximum credit limit and can draw from it as needed, much like a credit card — but at far lower rates because your house is the collateral. A HELOC is a "second" lien that sits behind your primary mortgage, so you can tap your equity without disturbing the low rate you may already have on your first loan.
How Home Equity Is Calculated
Your equity is simply your home's current market value minus the balance you still owe. Lenders cap how much of it you can access using a combined loan-to-value (CLTV) ratio, typically between 80% and 90%. Suppose your home is worth $450,000 and you owe $280,000. At an 85% CLTV limit, your total allowable debt is $382,500; subtract the $280,000 you already owe and you have roughly $102,500 of borrowing power. The calculator above does this math for you and shows your available credit instantly.
Draw Period vs. Repayment Period
A HELOC unfolds in two distinct stages. The draw period — commonly the first 10 years — is when you can borrow, repay, and borrow again, and many lenders allow interest-only payments during this time, keeping monthly costs low. Once the draw period closes, the repayment period begins, often lasting 20 years. You can no longer borrow, and your payment now includes principal as well as interest, which can cause a sharp increase. Planning for this transition is the most important part of using a HELOC responsibly; the calculator shows both the interest-only and fully amortizing payments so there are no surprises.
Variable Rates and Payment Risk
Most HELOCs carry a variable interest rate, usually expressed as the prime rate plus a margin set by your lender. When the Federal Reserve raises or lowers rates, your HELOC rate — and therefore your payment — moves with it. This flexibility is a double-edged sword: payments can fall when rates drop, but they can also climb meaningfully when rates rise. Some lenders offer a fixed-rate conversion option for part of your balance. Whatever you choose, it is prudent to stress-test your budget against a rate two or three points above today's, especially before the repayment period begins.
HELOC vs. Cash-Out Refinance
Both let you turn equity into cash, but they work very differently. A cash-out refinance replaces your entire mortgage with a new, larger one — sensible only when current rates are at or below your existing rate. A HELOC leaves your first mortgage exactly as it is and layers a flexible credit line on top. If you locked in a low fixed mortgage rate in recent years, a HELOC usually wins because you avoid resetting that rate; if you need a large fixed sum and rates have fallen, a cash-out refinance may be cheaper. Match the tool to your situation, and borrow only what you can comfortably repay, since your home secures the debt.