How Much HELOC Can I Get?
Your LTV Before HELOC
Your LTV After HELOC
How does the HELOC Calculator Work?
The home equity line of credit or HELOC Calculator provides the maximum eligible loan amount that can be borrowed based on the equity in the home. In order to qualify for a HELOC, the borrower must have a credit score greater than 620 and at least 20% equity in the home such that the Loan-to-Value (LTV) ratio is less than 80%. For example, if the home value is $300,000 then the equity in the home must be at least $60,000 ($300,000 * 20%) to qualify for a HELOC. In order to determine the maximum eligible loan amount, the following information is required: home value, outstanding balance on the mortgage, and credit score.
A home equity line of credit or HELOC allows homeowners to get access to cash by borrowing against the equity they own in the home. Similar to a second mortgage, the home acts as the collateral for the loan. The HELOC calculator determines the maximum loan amount that can be borrowed based on the home value and the outstanding mortgage balance. Most lenders allow up to 80% of the Loan-to-Value (LTV) ratio to be included in the HELOC. For example:
- Home Value = $100,000
- Outstanding Balance on Mortgage = $50,000
- Credit Score greater than 620
- LTV ratio = 50% ($50,000/$100,000)
- Maximum HELOC Allowed = $30,000 ($80,000-$50,000)
As shown in the example above, the home equity in the home is $50,000 ($100,000 - $50,000). The total amount that can be borrowed (the sum of the HELOC and the mortgages on the home) can only be up to 80% of the home’s value, which is $80,000. Therefore, the maximum HELOC loan amount in this case is $35,000 ($80,000 - $50,000). A HELOC works like a credit card, where you can take out and repay funds at any time with only a required monthly minimum payment. However, your HELOC balance cannot exceed your HELOC limit as determined by our HELOC Calculator.
How can the HELOC Calculator Help Me?
The HELOC calculator provides your current Loan-to-Value (LTV) ratio and the maximum HELOC limit you could be eligible for. The following information can be determined by changing the inputs in the calculator:
- Credit Score Eligibility: The calculator can show your credit score is too low. Most lenders will look for a credit score greater than 620.
- Change in Home Value: If you change the value of the home, then you can see the maximum loan amount eligible for a HELOC. For example, in the event of a recession and decline in home prices, the HELOC calculator can determine the new lower amount that will be available.
- Change in Outstanding Balance: If you prepay and reduce your mortgage balance, the calculator can show the new loan amount eligible under the HELOC.
Should I get a HELOC?
The HELOC calculator can help you determine the maximum credit facility you will be eligible for in this type of loan. If this maximum loan amount meets the value of the funds you require, then a HELOC might be the right choice for you. In most cases, a HELOC is used to increase the value of the home, in the form of new construction, maintenance, and remodeling. HELOC may also be useful for people who require cash but are not willing to sell their property. Using HELOC, a homeowner can get cash to finance their activities and keep their property. In this case, they receive money, keep their property and do not need to pay capital gains tax. This allows you to increase the value of the asset and which can have future payoffs. Using a HELOC for other expenses such as buying a new car or going on vacation can be extremely risky because the house is the collateral for the HELOC. If you default on your HELOC payments, the lender can foreclose on the home in order to recoup the unpaid amount.
How is the HELOC Repayment Calculated?
The HELOC repayment varies from month to month depending on several factors:
- Interest Rates: HELOCs have variable or adjustable-rate interest rates so a change in the interest rate can result in higher or lower monthly payments. HELOCs are tied to the prime rate which is linked to the Fed funds rate. The federal reserve can change the Fed funds rate which will affect the prime rate and the HELOC payment. For example, if the HELOC rate is 4.25%, where the prime rate is 3.25% and the spread is 1%, if the Fed funds rate rises by 1% then the prime interest rate will approximately also increase by 1% to 4.25%, which result in the HELOC rate of 5.25% (4.25% + 1%).
- Stage of the Loan: HELOCs are divided into two parts: the draw period and the repayment period. In the draw period, you can keep borrowing from the HELOC and the only payment that has to be paid is the interest on the outstanding balance and not on the principal. In the repayment period, you will have to repay both the principal and the interest which is amortized for the rest of the loan.
- Rate Caps: A rate cap can limit the maximum interest rate on your HELOC and protect you in case interest rates rise. Lifetime cap determines the highest interest rate you can pay, such that if the variable rate rises above this level, the interest rate on your payments will not rise. Periodic caps restrict the amount the interest rises in one adjustment period.
Home Equity Loan VS HELOC
Home equity loans and HELOC, are a type of second mortgage. A home equity loan is a fixed-term loan that allows homeowners to borrow against the equity they own in the home. A home equity loan is also a type of second mortgage as the home is the collateral in the loan. The major difference between a home equity loan and a HELOC is the manner in which funds are borrowed and repaid. In a home equity loan a lump sum is borrowed and a fixed monthly payment of principal and interest is paid just like the existing mortgage. Whereas, in a HELOC, the homeowner can borrow the funds they need and initially only make interest payments. A HELOC has a variable rate and works like a credit card where funds can be withdrawn and repaid.
|Criteria||Home Equity Loan||HELOC|
|Loan Amount||Lump-sum||Borrow as required|
|Monthly Payment||Fixed every month||Changes with rate|
|Loan Repayment||Principal + Interest||Draw Period: Interest Only |
Repayment Period: Principal + Interest
Advantages and Disadvantages of a Home Equity Loan
|Low interest rates.||The lower interest rates require a higher credit score of at least 670 and above.|
|Fixed monthly payments with predictable payments and amortization schedule.||Requires at least 20% equity in the home, an LTV ratio of 80%.|
|Home equity loans may not have fees.||If home value falls, you can owe more than the value of your home.|
|Loan interest is tax deductible if the borrowed funds are for home repair and remodelling.||If you default on the loan, the home can be foreclosed.|
Advantages and Disadvantages of a HELOC
|Borrow the amount of funds that are needed and not more.||Variable rates are unpredictable, they are based on a benchmark index like the prime rate which is connected to the Fed funds rate and can change based on market conditions.|
|HELOC fees can be removed depending on the lender.||Requires at least 20% home equity or an LTV ratio of 80%.|
|Flexible repayment options where initially only interest payments are required.||Risk of overspending as principal payments are not required initially.||Tax deductions on interest if the funds are used for home repair.||Default on payments can result in losing the home.|
HELOC Lenders & Rates
Many lenders offer a HELOC, so a borrower has a large number of options to choose from. Large banks, credit unions, direct lenders, and even some private lenders provide this type of line of credit because it tends to be low risk and widely used. Because of the large number of lenders, it might be difficult to pick one that fits your needs the best, so it is important to know what to look for when choosing the lender. The most important characteristics to consider are the annual percentage rate (APR), term length, and the maximum loan-to-value ratio.
The following list provides an overview of the largest HELOC lenders in the United States as well as their APR range, term lengths, and loan-to-value ratios available.
- US Bank
This bank tends to provide basic services all over the US, but when it comes to HELOC programs, they only operate in limited areas, so it is important to check with them whether they service your specific area. The variable rate APR they charge on HELOC is set at 3.70% and is subject to change. They provide a quick and user-friendly application service that may interest some people. On the other hand, US Bank provides HELOC for virtually no dollar limit as long as the borrower’s LTV is below 80%, which is lower than for other large lenders.
- Flagstar Bank
This bank operates mainly across the Midwest and offers a range of banking and lending solutions for individuals and businesses. Flagstar Bank offers HELOC programs that are available mainly in Midwest and Southeast regions. They offer HELOC with a variable rate APR that currently can be set as low as 4.49%. Their APR is set based on the Wall Street Journal prime rate and there are no bank-imposed costs of getting a HELOC as long as the account is open for at least 36 months. The amount a borrower can expect to receive from them ranges from $10,000 to $1,000,000 with a maximum LTV of 89%. The term length for their HELOC consists of a 10-year draw period and a 20-year repayment period.
- Bank of America
This bank offers HELOC programs across the US, which means that a borrower can apply for their program in any state. Their variable rate (APR) is set at 4.65%, but it is subject to change with the change in the prime rate. Bank of America provides a loan of up to $1,000,000 as long as the LTV is below 85%. In addition to that, they do not charge any fees throughout the HELOC lifetime nor do they charge any closing costs. They also have certain interest rate discounts for initial withdrawals, their members, and people who set up automatic payments.
This lender operates as a credit union, and it is the only credit union on the list of large HELOC lenders. PenFed has a rather complex fee structure that allows borrowers to take advantage of lower interest rates where applicable. Their variable interest rates (APR) start as low as 3.75% and increase as the LTV value increases. A borrower can get a HELOC for LTV of up to 90%, which is one of the highest LTV ratios available among the largest HELOC lenders. Their line amount can range from $25,000 to $1,000,000 and the limit depends on the LTV ratio of the borrower. Similar to other large lenders, they have a standard HELOC length with a 10-year interest-only period followed by a 20-year amortization period.
- RBC Bank
Royal Bank of Canada is a Canadian bank that also provides services in the US. More specifically, they have a HELOC program for US consumers that can be denominated in US dollars as well as Canadian dollars. They offer to waive the closing costs on HELOC for new customers and provide HELOC for LTV of up to 80%. They also have a 10-year interest-only period followed by a 20-year amortization period. Their interest rate depends on the borrower, so it is difficult to provide information on their APR.