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A HELOC can be one of the most useful and versatile loans available. It's an option available to those that own a home and need some cash.

A HELOC utilizes the equity built-up in the home to get the money you need right now. A HELOC calculator can help you understand your options better.

This article will explain the basic details about the HELOC calculator and how it can help you get a better grasp of whether a home equity line of credit is right for you.


How can a HELOC calculator help me?

A HELOC calculator is a great tool to help you work out your obligations on this type of loan.

Since a HELOC is so versatile, you can opt for a payment schedule that fits your budget. That's where a calculator can be a great help. It lets you see how fast you'll pay off your loan based on different payment amounts.

Using our HELOC calculator can save you time and energy, and give you a better idea of what works best!

What is a HELOC and how does it work?

HELOC stands for Home Equity Line of Credit. It's a line of credit that borrows against the equity in your home and uses it as collateral.

A line of credit is a loan that allows you to take out as much or as little money as you want at any given time. As opposed to a term loan, like an auto loan, that has a fixed borrowing amount with fixed monthly payments.

Note, all lines of credit have a credit limit, which is the greatest amount of money you can borrow on that loan.

Many people don't use their HELOC right away. They have it there in case they need money in the future.


Let's say you take out a $10,000 HELOC. You have options for when and how much money you use.

You can take the full $10,000 out right away. Or you may only need $5,000 right now, and another $5,000 a few months from now. Or you can take $1,000 every month for ten months.

What's better, a home equity loan or line of credit?

This depends on your needs. A line of credit usually only calls for interest-only payments each month.

It's a useful product if you're planning to buy something, finance it for a short time, then pay it off in full. You only owe interest on what you have withdrawn until it's paid.

A HELOC is a nice option if you aren't sure how much money you can afford each month. It gives you choices about how much you'll pay.

A home equity loan is a term loan, like an auto loan. It means you can't pay it down and re-advance it later.

You also have a fixed payment with a home equity loan. You'll pay principal and interest on the loan based on a payoff schedule.

A regular equity loan is good if you want to get something paid off in a certain amount of time. Your equity loan payments will pay down your balance each month.

How much equity do I need to get a line of credit?

As with any home loan, the bank takes out a mortgage on your home. If you already have a first mortgage, then the bank takes a second mortgage for the HELOC.

A bank usually requires a home valuation, like an appraisal or an in-house evaluation, before determining the amount of the loan.

Banks lend up to certain percentage of the value of the home. Here's an example:

  • Let's assume that your home appraises for $100,000. Your first mortgage is $80,000. That means you have $20,000 in equity.
  • If the bank is willing to lend up to 95% of the value, then you are eligible for a HELOC of $15,000.

This value ratio is loan-to-value and it's a measure of risk to the bank. The higher the loan-to-value, the higher the HELOC rates and vice versa.

It also depends on the bank. Some banks don't lend over 80% loan to value.

Are payments always interest-only?

Most loan payments are broken down into two parts: principal and interest.

The principal portion goes toward paying down the loan balance. Interest accrues over time and is added to the cost of the loan. A HELOC requires that you only pay the interest portion each month.

Let's look at another example:

  • Your HELOC has a $10,000 balance and an annual percentage rate of 5%.
  • That means you'll owe $500 in interest over the course of a year.
  • This breaks down to about $42 per month, which is the smallest required payment.
  • If you choose to pay $100 one month, then $42 will go toward interest and $58 will pay down your balance.
  • Your new balance is $9,942.

HELOC Pitfalls

A word of caution about interest-only payments: be careful in the long-run. The longer you make the minimum payment, the more it costs you over time.

If you're planning to pay off your HELOC with a lump sum, say with the sale of a piece of real estate, then it's a great way to go.

But, if you don't have a plan to pay it off, making interest-only payments may not be the best option. A HELOC payment calculator can help you figure out the right monthly payment.

Be sure to discuss this with your banker and get their thoughts on the best way to make your loan payments. The beauty of a HELOC is that it gives you options.

Why pay extra?

As noted in the example above, extra payments toward the principal can help you pay the loan off quicker.

If your interest-only payment is $125 each month and you pay $200, then the remaining $75 goes to lower your balance. The longer you do that, the sooner your loan is paid in full!

Is a HELOC right for me?

We hope we've given you some good ideas about how a HELOC works. But always discuss the options with a trusted financial professional. They can suggest the right loan for you based on your credit, home equity position, and personal finances.

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