Home Equity Line of Credit Calculator (HELOC): How Much You Could Borrow?

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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Significant expenses come up. You may want to plan a vacation, invest in home improvements, or buy a new car, but your bank account may not support those plans. You could rack up credit card debt, but who wants to do that when interest rates are sky-high?

Homeowners can obtain funds for the next big-ticket purchase through a home equity line of credit. The amount you can borrow will depend on several factors. Our home equity line of credit calculator will reveal how much you can get from the bank. In addition, we’ll cover the pros and cons of a HELOC, cash-out refinances and everything else you should know about this financing option.

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What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit is a loan tied to your home’s equity. Not all HELOCs have fixed interest rates, meaning your monthly payments can increase due to interest rate hikes. You can use these funds as necessary. Your home equity increases each time you make a monthly mortgage payment, adding more to your line of credit. You won’t get charged interest for unused funds.

How Do You Calculate Your Home Equity Line of Credit (HELOC)?

A home equity line of credit calculator can give you an idea of how much equity you can take out of your home. Several factors determine how much money sits in your HELOC.

Determine Your Home’s Value

A HELOC taps into your home’s equity. Determining your home’s value helps you determine your HELOC. You can get an appraiser to assess your home or look at the most recent appraisal available. Inflation, upgrades, and other components raise the value of your home over time. A new appraisal can increase your home’s value and open up more funds.

Deduct the Amount You Owe

After determining your home’s value, subtract the amount you owe. For example, if your home is worth $500,000 and you owe $400,000, you end up with $100,000. This difference represents your home equity. 

Calculate Your Loan to Value Ratio

The loan to value ratio measures the percentage of your home’s appraised value that relies on debt. For instance, if your home is worth $800,000 and you owe $200,000, your loan to value ratio is 25%.

Many lenders impose a loan to value ratio limit for HELOCs. If a lender has an 80% loan to value limit for the previous example, you can’t owe more than $640,000 for your home ($800k * 80% = $640k).

What is Your Credit Score and Annual Income

Lenders will assess an applicant’s financial health when approving HELOC applications. A high credit score and reliable annual income will increase your chances of obtaining a home equity line of credit. On the other hand, you may still get a HELOC with a low credit score, but you’ll pay a higher interest rate.

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How Much Could You Borrow with a HELOC?

Lenders typically let you access up to 80% of a home’s value for your HELOC. If your home is worth $500,000, your current debt and HELOC can max out at $400,000.

If you still owe $300,0000 on the mortgage, you can take out a HELOC up to $100,000. Your credit score and income will impact a lender’s maximum LTV ratio, interest rates, and acceptance.

What are the Drawbacks to Home Equity Loan and Home Equity Line of Credit (HELOC)?

It’s obvious why people take out a HELOC. They want extra funds for a new purchase or to help with expenses. However, a home equity line of credit can hurt your finances if you’re not careful. Keep these cons in mind so you can safely take out a HELOC.

They Are an Additional Debt 

Extra debts add up and become more difficult to pay off. A home equity line of credit can strain your budget and lead to challenging decisions. Only take out a HELOC for a critical purchase instead of “fun money” or speculative investments.

Harder to Qualify For

Lenders will look at several factors to determine if you qualify for a HELOC. You’ll have more debt now than you had before buying a house. The extra debt will hurt your debt-to-income ratio and make it more challenging to obtain a home equity line of credit. 

Since your house is collateral, you’ll fare better with this loan than a personal loan or credit card debt. However, it’s no walk in the park to acquire a home equity line of credit.

Monthly Payments, Fees, and Interest

You’ll have to pay back the HELOC each month. Some people who fall behind take out another HELOC or refinance. These strategies increase how much you’ll owe over time. You’ll also have to pay fees for using a HELOC. Ask your lender about their fees so you don’t get hit with any surprises. Only take out as much money as you can comfortably pay back. 

Fixed Terms

You’ll have to pay back the HELOC under a fixed term, usually 10-20 years. This term limit is shorter than most mortgages. Shorter fixed terms increase monthly payments.

Is there an Alternative? Unlock Home Equity Agreement

A home equity line of credit gives you access to additional funds. However, you’ll also incur more debt and compress your budget. An Unlock Home Equity Agreement can help you access equity without monthly payments, fees, or interest.

Homeowners can get between $30,000 and $500,000 depending on their home value and current debt. Unlock doesn’t have a minimum income, and you only need a 500 credit score to tap into your home equity. Instead of handing out a loan, Unlock invests in your home. They derive value as a percentage of your home’s future value. Think of the company as a real estate investor instead of a lender.

You can head over to Unlock’s website to use their free home equity line of credit calculator and receive a cash offer if you qualify. Get a free quote from Unlock today.

Advantages of Opting for a Home Equity Agreement

Opting for a home equity agreement comes with many perks you don’t find with a traditional HELOC. We’ve outlined them below.

You Don’t Incur Any Additional Debt

Adding another debt to your budget can cause significant financial stress. However, some people need to take out the HELOC, especially for an emergency like medical expenses. A home equity agreement protects you from incurring additional debt. 

Easier to Qualify For

Lenders will ask about your income and other details when applying for a HELOC. A home equity agreement doesn’t ask for all of those details. You still need a credit score over 500, but qualified applicants won’t need to show income. Declining income and unemployment won’t hurt your chances of landing a home equity agreement.

No Monthly Payments, Fees, or Interest

Monthly payments from a HELOC can get frustrating, and they won’t go away for at least 10 years. Some people get a second HELOC or refinance to help pay off their first HELOC. Someone caught in the debt cycle can end up paying far more than their home’s value. A home equity agreement lets you avoid this vicious cycle. 

Flexible Terms

You don’t have to pay Unlock back until you sell your home or decide to buy them out. These terms offer more flexibility for repayment. You can pay them back after the sale or once you accumulate enough funds. For example, if you gave 10% equity for a home equity agreement, you would have to buy back 10% based on the appraised value to buy out of a home equity agreement. 

Get Cash From Your Home Without Adding Debt

A HELOC provides extra cash but comes with significant risks. Some people need the funds and will reluctantly incur the debt. There is a better way to get cash from your home without any debt or monthly payments.

Unlock invests in homeowners so they obtain the cash they need without straining their budgets. You can answer a few simple questions on their website to see how much money you can receive in a home equity agreement. An Unlock cash offer comes with no obligation.

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