If you’re a homeowner, you might be able to tap into your equity with a home equity line of credit (HELOC). A HELOC lets you borrow against the value of your home on a revolving basis and pay back the amount as you go — similar to a credit card.
Use our HELOC calculator below to estimate how much you might be able to borrow with this type of loan based on your home value, outstanding mortgage balance and credit score.
How to use our HELOC calculator
To use our HELOC calculator, follow these steps:
- Enter your home’s value. To calculate this, you can use an online home value estimator tool through sites like Zillow or Redfin or compare the value of similar properties in your area — though keep in mind that these will be rough estimates. You could also consider consulting with a realtor to get a more accurate value.
- Enter how much you owe on your mortgage. You can confirm your current balance by either calling your lender or checking your online loan account (if applicable). Also make sure to add any other loans secured by your home.
- Enter your credit score. You might be able to check your credit score through your bank, loan or credit card company. You can also get your score for free through Experian (one of the three credit bureaus) or through a credit-monitoring site.
After inputting this information, the calculator will estimate how much you can borrow with a HELOC. It will also provide your current loan-to-value (LTV) ratio, which compares the amount you owe on your home with your home’s current value. Most lenders require a combined LTV (CLTV) ratio no higher than 80% to 85% to qualify for a HELOC. This means that both your mortgage and the HELOC can add up to no more than 80% to 85% of your home’s value.
Exactly how much you might be able to borrow as well as the rate and terms you qualify for will depend on the individual lender and your financial profile. So while this calculator provides an estimate, keep in mind that lenders will require additional information to determine your creditworthiness as well as your final loan amount, rate and terms.
How to calculate your home equity
You’ll typically need to have at least 15% to 20% equity in your home to qualify for a HELOC. To calculate your home equity, subtract how much you still owe on your mortgage — plus any other loans secured by your house, such as a home equity loan — from your home’s current value.
Current Home Value – Total Loan Balance = Equity.
How much is my home worth? Tips on finding your current home value
If you’ve been living in your home for a few years, the value of your home may be different than it was when you bought it. Here are a few ways to calculate your home’s current value:
- Use an online home value estimator. There are several websites that offer home value estimator tools, including Zillow, Redfin and Rocket Homes. You’ll simply enter your address for an estimate.
- Research comparable properties in your area. Check out homes similar to yours that have been sold recently in your area to see how much they sold for. These comparisons (often referred to as real estate comps) can give you an idea of what your home is worth. Just keep in mind that prices can vary by home size, renovations, location, market conditions and other factors.
- Consult with a realtor. Many realtors offer comparative market analysis (CMA) for free as part of trying to win your business. This will include reviewing real estate comps as well as drawing on their professional knowledge of the area and property to give you a value estimate.
- Hire a professional appraiser. If you want the most accurate valuation, you could hire a professional appraiser. However, this could cost you hundreds of dollars. Also keep in mind that if you apply for a HELOC, the lender will likely require an appraisal to determine your home’s value, which will be included in your closing costs. This might be a quick desktop appraisal based on tax records and other information in the Multiple Listing Service (MLS), a drive-by appraisal or a full in-person appraisal.
How does a HELOC work?
A HELOC is a revolving line of credit that allows you to borrow against the equity in your home and uses your house as collateral. Depending on the lender, you can typically borrow up to 80% or 85% of your CLTV ratio. Like with a credit card, you’ll pay interest only on what you actually borrow from your credit line rather than on the entire amount. Note that HELOCs usually come with variable interest rates, which means your rate could fluctuate over time depending on market conditions.
HELOC repayment terms can range up to 30 years. You can typically withdraw money for a period of 10 years — this is known as your draw period. After the draw period ends, you’ll enter the repayment period, during which you’ll make monthly payments to cover both your principal balance and interest charges. This repayment period often lasts for 20 years, but the exact terms and conditions will vary by lender.
How to choose a HELOC
If you’re thinking about applying for a HELOC, it’s important to shop around and compare your options with as many HELOC lenders as possible to find the right loan for your needs. Similar to shopping for a mortgage, it’s a good rule of thumb to get at least three or more quotes before deciding on a lender.
Many lenders let you prequalify online, which lets you check your personalized rates with only a soft credit check that won’t impact your credit score. It’s also worth asking your current mortgage lender about options, especially if you can take advantage of any discounts or special rates available to existing customers.
As you compare HELOC options, here are some important factors to keep an eye on:
- Interest rate: This is a percentage of your principal that the lender charges in return for allowing you to borrow money. Your interest rate will directly impact your monthly payments and long-term borrowing costs, which is why it’s a good idea to shop around for a competitive rate. Note that some HELOCs come with a promotional introductory rate for six months or so that will increase after this period ends.
- Draw and repayment period: Be sure to find out how long each of these periods is as well as what your repayment obligations will be during these times.
- Closing costs: Closing costs generally range from 2% to 5% of your total loan amount. Make sure to compare how much you can expect to pay in closing costs and any other fees to find an affordable HELOC offer.
- Appraisal fees: While many lenders conduct immediate desktop appraisals, others require in-person appraisals, which can cost several hundred dollars and will be added to your closing costs. Find out if your HELOC will come with an appraisal and how much the fee will be.
When to use a HELOC
A HELOC can be an ideal option if you have sufficient equity in your home and can qualify for a competitive rate. “The main benefit of a HELOC is its flexibility,” says Judy Dutton, executive editor at Realtor.com. “HELOCs are ideal for people who aren’t sure how much money they need, or when they’ll need it.”
Some situations where a HELOC could make good financial sense include:
- You need home repairs or improvements. A HELOC can be a helpful option if you’re completing home repairs or improvements over time as you can repeatedly draw on and pay off your credit line.
- You have to cover a large or emergency expense. If you need to cover a large purchase or are facing unexpected expenses like medical bills, using a HELOC can be a less expensive choice compared to taking out a personal loan or using a credit card. This is because HELOCs generally come with lower interest rates compared to these other options.
- You want to consolidate debt. Because HELOCs have lower interest rates than personal loans, using one to consolidate high-interest debt — such as credit card debt — can save you money on interest over time. This could also help you repay the debt more quickly.
When not to use a HELOC
Like other types of mortgages, a HELOC is secured by your home. This means you risk losing your house if you can’t keep up with your payments — so it’s critical to make sure you can reasonably afford a HELOC before you get one. Also remember that HELOCs usually come with variable rates, which means your payment could increase or decrease according to market conditions.
On top of making sure you can afford a HELOC and can handle potential changes in your rate, there are also some scenarios where using this kind of loan generally isn’t a good idea, such as:
- You want to afford non-essential expenses. Drawing on a HELOC to cover non-essential expenses — such as a vacation — usually isn’t worth the risk.
- You want to buy a depreciating asset. While you can use a HELOC to buy a depreciating asset like a car or boat, you could end up with a better deal on financing that’s specifically geared toward this type of purchase. For example, you might get a lower rate on an auto loan to buy a car — and you won’t run the risk of losing your home if you can’t keep up with the payments.
- You need to cover college costs. If you need to borrow for college, it’s usually best to rely on federal student loans first as they come with a variety of borrower protections. Other options to cover college expenses include scholarships and grants, which don’t have to be repaid.
HELOC vs. home equity loan
There are also other ways to tap into your home besides taking out a HELOC. One option is a home equity loan, which has similar qualification requirements as a HELOC.
However, unlike a HELOC that gives you access to a revolving credit line, a home equity loan is an installment loan that provides a lump sum to use how you’d like — similar to a personal loan. This could make a home equity loan a good option if you know exactly how much you need to borrow. Home equity loans also typically come with fixed interest rates, meaning your rate and payment won’t change over the life of the loan.
Keep in mind that like a HELOC, a home equity loan is secured by your home, meaning the lender could foreclose on it if you don’t make your payments.
HELOC vs. cash-out refinance
Another option for borrowing against your home’s equity is a cash-out refinance. With a cash-out refinance, you’ll take out a new, larger loan to pay off your original mortgage, and you’ll get the difference as a lump sum to use how you’d like.
Unlike a home equity loan or HELOC — both of which are a type of second mortgage — a cash-out refinance entirely replaces your first mortgage. This means you’ll only have one loan to manage instead of two.
Additionally, while interest rates for cash-out refinancing are often higher compared to other kinds of mortgage refinancing, they’re typically lower compared to what you’d get on a home equity loan or HELOC. Note that a cash-out refinance could come with a fixed or variable rate (often called an adjustable rate).
Compare the best HELOC lenders
Frequently asked questions (FAQs)
The rate you’re offered on a HELOC will vary depending on the lender you work with as well as other financial factors, such as your credit score. As of May 5, the average rate for a HELOC is 8%.
The exact credit score you’ll need to qualify for a HELOC will vary by lender. Most lenders typically require a credit score of at least 680, though you might need a score as high as 720 to qualify with others.
There are also some HELOC lenders that accept lower credit scores — usually down to 620. However, these bad credit loans can come with higher interest rates, and you might also need to have more equity or a higher income to qualify.
Ultimately, whether you should use a HELOC will depend on your individual needs and financial goals. Generally, a HELOC could make financial sense if you have a good amount of equity in your home and can qualify for a competitive rate.
HELOCs usually come with lower interest rates than personal loans and credit cards, which can help you save money on borrowing costs. Some good uses of a HELOC might include paying for home renovations that increase the value of your house or consolidating high-interest debt.
However, remember that opening a HELOC comes with a certain amount of risk.
“This loan is secured by your home, and if you don’t pay off your HELOC under the terms you’ve agreed to, the lender could foreclose on your home — even if you’re paying off your first mortgage like clockwork,” says Dutton. “A HELOC may be considered a ‘second mortgage’, but it’s one you’ll want to take as seriously as your first.”
If you can’t reasonably afford to repay a HELOC, it’s not a good idea. HELOCs also usually aren’t ideal to cover non-essential expenses, depreciating assets or college costs.
