How borrowing power is calculated
Equity = home value − all loan balances
Maximum borrowing = home value × CLTV limit − all loan balances
CLTV = (all loan balances + new borrowing) ÷ home value
The combined loan-to-value (CLTV) limit is set by each lender, which is why the field is editable; the 85% default is only an example. You can never borrow all of your equity.
HELOC vs home equity loan payments
- HELOC draw period — many HELOCs let you pay interest only while you can draw:
balance × rate ÷ 12. - HELOC repayment period — the balance then amortizes like a mortgage over the remaining years, so the payment jumps.
- Home equity loan — a lump sum at a fixed rate, with the standard amortizing payment from day one.
Worked example
A $450,000 home with $260,000 owed and an 85% CLTV limit; borrowing $50,000 at 8.5%:
| Equity | $190,000 |
|---|---|
| Maximum borrowing (450,000 × 85% − 260,000) | $122,500 |
| HELOC interest-only payment | $354.17 |
| HELOC payment in 20-year repayment period | $433.91 |
| 15-year fixed home equity loan payment | $492.37 |
| CLTV after borrowing | 68.9% |
The HELOC payment rises by $79.74 a month when repayment begins, even if the rate never changes.
Before you borrow against your home
Your home secures the debt, so missed payments put it at risk. Variable HELOC rates can rise; ask about rate caps, annual fees, minimum draws and whether the lender can freeze the line. The CFPB publishes a HELOC booklet lenders are required to give you.
Frequently asked questions
How much equity do I need for a HELOC?
Enough that your total borrowing stays under the lender’s CLTV limit, which each lender sets. With an 85% limit, for example, you need more than 15% equity to borrow anything.
Is a HELOC or a home equity loan better?
A HELOC suits ongoing or uncertain costs, since you only pay interest on what you draw. A fixed home equity loan suits a single known expense and gives a predictable payment.