How much can I borrow with a home equity line of credit?

How a home equity line of credit works

A HELOC is a revolving line of credit secured by your home, much like a credit card with a much lower rate. You can borrow, repay and borrow again during the draw period, usually 10 years, often paying only interest. After that, a repayment period, often 20 years, begins and you pay back principal and interest.

How much you can borrow

Lenders typically allow your mortgage and HELOC together to reach 80% to 85% of your home’s value, sometimes 90%. With a $600,000 home and a $300,000 mortgage, an 85% limit means a line of up to $210,000.

Payments

If you draw $50,000 at 8.5%, interest-only payments during the draw period are about $354 a month. Once repayment starts, the payment rises to about $434 a month over 20 years. HELOC rates are usually variable, set at the prime rate plus a margin, so the calculator also shows what happens if the rate rises 2 points.

HELOC or cash-out refinance?

A HELOC leaves your first mortgage alone, which is valuable if its rate is low. It also lets you borrow only what you need, when you need it. A fixed-rate home equity loan is an alternative if you want a predictable payment.

Using a HELOC wisely

HELOCs work best for expenses you’ll pay back within a few years, like a renovation, rather than ongoing spending. Plan for the payment once repayment begins, not just the interest-only payment. Lenders can freeze or reduce a line if home values fall, so don’t count on unused credit as your only emergency fund. Compare offers on margin, fees, minimum draws and any early-closure fee.

Questions buyers ask