How a HELOC works
A home equity line of credit is a revolving line secured by your home, like a credit card with a house behind it. You borrow what you need, when you need it, up to a limit, and pay interest only on what you've drawn. It sits behind your first mortgage, which stays exactly as it is.
A HELOC has two phases. During the draw period, usually 10 years, you can borrow and repay freely, and most lenders require only the interest each month. In the repayment period, usually 20 years, borrowing stops and the balance is paid off with principal and interest. The rate is almost always variable, set as the prime rate plus a margin, so payments in both phases move when the Federal Reserve moves rates.
How much you can borrow depends on your combined loan-to-value ratio: the mortgage plus the line, as a share of the home's value. If you're still deciding between a line and replacing your mortgage, compare this with the refinance calculator.
How to use this calculator
- Enter your home's value and mortgage balance. Use a realistic value: the lender will order an appraisal or an automated valuation.
- Set the lender's loan-to-value limit. 80% to 85% is typical. The tool shows the credit limit it produces.
- Enter the rate and the amount you'll draw. If you draw more than the limit allows, the verdict says by how much.
- Choose the draw and repayment periods. They come from the lender's terms; 10 and 20 years are the most common.
- Compare the two payments. Budget for the repayment payment, not the interest-only one.
Formulas & methodology
Limit = Home value × CLTV limit − Mortgage balance
- CLTV
- Combined loan-to-value: (mortgage + line) ÷ value
CLTV = (Mortgage + Draw) ÷ Home value
Payment = Draw × Rate ÷ 12
M = Draw × r ÷ (1 − (1 + r)^−n)
- r
- Rate ÷ 12
- n
- Repayment years × 12
Interest = Interest-only × draw months + (M × n − Draw)
The calculator assumes the full draw on day one and a fixed rate, so it shows the most the line could cost at today's rate. In practice you may draw in stages and repay during the draw period, which lowers the interest, while rate increases raise it.
Worked example
A home worth $500,000 with a $300,000 mortgage has $200,000 of equity. At an 85% limit, a lender would open a line of up to $125,000. Drawing $50,000 at 7.75% costs $323 a month while you draw. When the 20-year repayment period begins, the payment becomes $410, and the line costs $87,264 in interest over its life.
| Rate | Interest-only | Repayment | Total interest |
|---|---|---|---|
| 7.75% | $323 | $410 | $87,264 |
| 9.75% | $406 | $474 | $112,572 |
The second row shows the same line if prime rises two points, which it did in 2022 and 2023. A variable rate is the main risk a HELOC carries.
The repayment jump
Interest-only payments make a HELOC feel cheap for years. When the draw period ends, the payment rises because it now repays principal over a shorter time. In the example it climbs $88 a month, about 27%. Paying principal during the draw period, or refinancing the balance into a fixed home equity loan before repayment starts, keeps that jump manageable.
HELOC vs. the alternatives
- Home equity loan. A lump sum at a fixed rate with a fixed payment from day one. Better when you know the exact amount and want certainty.
- Cash-out refinance. Replaces the first mortgage with a larger one. Sensible when today's rate is close to or below your current rate; costly when your existing rate is much lower.
- Personal loan. Unsecured, so your home isn't at risk, but rates run far higher and terms shorter.
Whatever you choose, remember that a HELOC is secured by your home: missed payments can lead to foreclosure, just like a mortgage. If you're borrowing to improve a rental, the cap rate and rental ROI calculator shows whether the upgrade earns back its cost.
HELOC FAQ
- How much can I borrow with a HELOC?
- Lenders cap the combined balance of your mortgage and the credit line at a share of the home's value, usually 80% to 85%, sometimes 90%. Your limit is the home's value times that cap, minus what you owe on the mortgage. On a $500,000 home with a $300,000 mortgage and an 85% cap, that's $125,000. Credit score, income, and debt-to-income ratio also affect the final limit.
- How is a HELOC payment calculated?
- During the draw period, typically 10 years, most HELOCs require interest only: the balance times the annual rate, divided by 12. When repayment starts, the balance is amortized like a mortgage over the repayment period, usually 20 years, so the payment covers principal too and rises, often sharply.
- Is HELOC interest tax deductible?
- Only if you itemize, and only when the money buys, builds, or substantially improves the home that secures the line. Interest on HELOC money used for a car, tuition, or paying off cards isn't deductible under current federal rules. Keep records of how you spent the draws.
- Can a lender freeze or cut my HELOC?
- Yes. Most HELOC agreements let the lender freeze or reduce the line if the home's value drops significantly or your finances change. Lenders did this widely in 2008 and again in 2020. Don't count on an unused line as your only emergency fund.
- Is a HELOC or a cash-out refinance better?
- A HELOC keeps your first mortgage, and its rate, untouched, and you pay interest only on what you draw, which suits staged projects or a mortgage with a low rate. A cash-out refinance replaces the whole mortgage at today's fixed rate, which can make sense when rates have fallen. The refinance calculator compares the second option.
Embed this calculator
Add the live HELOC Calculator to your own site or blog. It runs entirely in the reader's browser, needs no account, and links back to this guide for the formulas.
<iframe src="https://keystonecalculators.com/embed/heloc-calculator" title="HELOC Calculator by Keystone" width="100%" height="1100" style="border:1px solid #0a0a0b;max-width:100%" loading="lazy"></iframe>
Free to use with the credit link intact.