Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
If you’ve been paying off your mortgage for a few years, especially in real estate markets where house prices are skyrocketing, you’ve probably built up equity in your home that you can now access through a line of credit. To see if you might qualify, use this calculator to determine how much capital you could borrow through a home equity line of credit (HELOC).
How to calculate the equity in your home
To calculate the equity in your home, you will need to find the current value of your home. To do this, you can quickly google your address on a real estate site, such as Zillow, to get a rough estimate. Then take that number and deduct the outstanding balance of your mortgage plus any loans secured by your home, such as a home equity loan, to get an idea of how much equity you have.
Point: Keep in mind that a lender may require you to get a professional appraisal when seeking financing secured on your home, but checking the value online is a good first step.
How to use this HELOC calculator
To use this calculator, you will need three main pieces of information:
- The current value of your home
- Your outstanding mortgage balance, plus any other loans secured by your home
- Your FICO credit score
The calculator will estimate how much you could borrow through a HELOC. It will also display your current loan-to-value (LTV) ratio, which is a metric used by lenders to determine how much more you can borrow on the home. Lenders generally require an LTV ratio of no more than 80%, although some may go as high as 90%. If you don’t have enough equity in your home or your credit score is low, you may not qualify for a home equity loan.
Although the calculator can give an estimate of how much you can borrow, talk to your lender for accurate results based on a wider range of information.
How does a HELOC work?
Unlike home loans where you typically get a lump sum up front and pay it off over time, HELOCs act like a line of credit that you can draw on as needed. You can withdraw up to a certain amount during a set period of time (called the drawdown period). After your draw period, the payback period begins.
Here’s how each period works:
- Draw period: During the Draw Period, you are only responsible for paying interest on the portion of credit you use. You can repeatedly repay and reuse credit during this drawdown period, which typically lasts 10 to 15 years depending on the lender and the creditworthiness of the borrower.
- Repayment period: After the drawdown period, you must begin making payments on the outstanding balance and interest. This repayment period can last for 20 years, but you will usually pay off the loan in full if you sell the home during this time. You can also voluntarily start repaying the principal during the drawdown period if you want to get a head start, but be sure to discuss this with your lender to ensure your payments will go to the principal.
Current HELOC rates
Typically, HELOC rates change whenever the Federal Reserve adjusts the federal funds rate. And with the Fed raising its rate several times in 2022, HELOC rates should also continue to rise.
To give you an idea of what you could pay in interest, the 52-week high on a 10-year HELOC is 6.09%, while the 52-week low is 2.55%, at 24 August 2022. For a 20-year HELOC, the rate ranged as high as 7.51% and as low as 5.14% over the past year.
Related: Best HELOC Rates
Why can I use a HELOC?
A HELOC can be used for almost any expense, but most borrowers use this line of credit to repair or improve their home, which can also help increase value down the road. Other common uses include paying off student loan debt, paying for medical bills, consolidating other debts at a lower interest rate, or covering a large unexpected expense.
How to get a HELOC
Qualifying for a HELOC is similar to applying for other home loans in that you will need to prove your creditworthiness and ability to repay debt. Lenders will check your credit score, income, debt-to-income ratio (DTI), and maximum LTV ratio. Typically, you’ll need a DTI of less than 43%, although some lenders allow up to 50%. And your LTV must be less than 80%, but not more than 90% to qualify for a HELOC.
Although some lenders have stricter requirements than others, most want you to have at least 20% of the equity in your home.
You will also need to have cash on hand to cover potential upfront costs such as loan processing or origination fees, as well as the cost of an appraisal, which can range from $300 to $400 for a single family Home.
How to find the best HELOC lender
In order to qualify for a HELOC and get the best rate, it is essential that you first research HELOC lenders online, through your current mortgage lender or banks with which you have accounts, and based on recommendations from friends or family. It’s always wise to get three to five quotes in order to have a solid comparison.
Related: Best HELOC Lenders
Some lenders may also offer offers such as no closing costs or waiving appraisal. Check their website or call directly to ask about discounts or special offers.
Find the best home equity lenders of 2022