How much home equity can you borrow?
Home equity is your home's value minus what you owe on it. Lenders usually let you borrow until your total loans reach about 80% to 85% of the home's value, called the combined loan-to-value (CLTV). For example, a $400,000 home with a $250,000 mortgage and an 85% limit leaves up to $90,000 to borrow.
HELOC vs. home equity loan
- HELOC – a line of credit you draw from as needed. During the draw period (often 10 years) many lenders require interest-only payments. Then the repayment period (often 20 years) begins and the payment jumps, because you now repay principal too. Rates are usually variable.
- Home equity loan – a lump sum with a fixed rate and the same payment every month from the start.
The calculator shows both HELOC payment phases and compares them with a fixed home equity loan at the same rate, so you can see how interest-only years raise the total interest.
Frequently asked questions
Is HELOC interest tax-deductible?
Only if you itemize deductions and use the money to buy, build or substantially improve the home that secures the loan. Interest on money used for other things, like paying off credit cards, is not deductible.
What credit score do I need for a HELOC?
Many lenders look for a score of about 680 or higher, plenty of equity and a debt-to-income ratio around 43% or less. Requirements vary by lender.
What are the risks of a HELOC?
Your home is the collateral, so missing payments can lead to foreclosure. Variable rates can raise your payment, and the jump from interest-only to full payments can be large.