You may wonder where the expression “your home is your greatest asset” comes from. It is based on the idea that, with enough monthly payments, over time, you can leverage your home’s built-in equity to put yourself in a better position financially.
One of the ways to do this is by opening a line of credit. To estimate how much you can take out with a home equity line of credit, you can use an equity loan calculator. The Home Loan Expert is here to guide you through which financial factors impact how much you can take out and what you should expect once the withdrawal period ends.
What is a Home Equity Line of Credit?
A home equity line of credit, or HELOC, is a loan that you borrow against your original mortgage loan. This is why it is also referred to as a second mortgage. Many people use a HELOC to finance larger financial needs, like home renovations, college tuition, medical bills, paying down consumer debts, starting a small business, or investing in other wealth-building ventures. The amount you can qualify for is determined based on the percentage of your home’s appraised value minus what you still owe on your first mortgage.
HELOCs are considered revolving loans and come with variable interest rates that fluctuate in alignment with market conditions. A HELOC can be broken down into two segments: the withdrawal period and the repayment period. Withdrawal periods typically last between 5 and 10 years. During this time, you can continuously borrow against your line of credit without exceeding the limit allotted by your loan. Once this period ends, you will transition into the repayment period. During the repayment period, you will no longer be able to withdraw more money. You will repay your loan which is calculated using principal and interest.
What Information is Needed for a Line of Credit Calculator?
There are several items you’ll need to input in a line of credit calculator. They include:
- Home Value. This input is based on your home’s appraised value. Ideally, your home’s appraised value will have appreciated since purchasing your home.
- Amount Owed on Your First Mortgage. This amount is based on the negotiated mortgage loan used to purchase your home. It will be used to calculate your loan-to-value (LTV) ratio which will determine how much you can take out using your line of credit. The more monthly payments you have made, the more equity you will have built into your home. The more equity you have built into your home, the more you can borrow against it. You must maintain a value of 10% to 15% equity (or an LTV maximum of 85% to 90%) on your home when using a HELOC with a conventional loan.
- Property Usage. Note whether this is a primary or secondary residence.
- Property Zip Code. Location, location, location! Your property’s zip code will affect its appraised value based on the location of your home.
- Amount Desired for your Line of Credit. Input how much you plan to withdraw using your HELOC. Keep in mind this is a revolving loan you can use for 5-10 years, so plan accordingly. The maximum loan amount you can take out factors in if you are leveraging a primary or secondary property.
- Cash Needed Now. This is the amount of cash you need immediately on hand when opening your line of credit. The amount you withdraw when your account is opened may qualify you for a lower interest rate on your overall line of credit.
And voila! You should now have an estimate for how much you can borrow using a HELOC.
What Happens When the Draw Period Ends and Repayment Period Begins?
You may be wondering how the draw and repayment periods on a HELOC will affect your monthly payments. During the HELOC draw period, you can continuously borrow against and repay your HELOC. You will only be required to pay the monthly interest each month. You have the option to pay principal, but that is not mandatory during the draw period.
Once the draw period ends, you will repay your HELOC based on the principal and interest. The amount you will repay each month depends on your outstanding principal balance, the negotiated term—longer terms will have lower monthly payments and shorter terms will have more aggressive monthly payments—and the interest rate. Those variables will be used to calculate a minimum monthly payment.
How Can The Home Loan Expert Help?
More than 15 years ago, The Home Loan Expert began its journey going door-to-door, asking community members if they were aware of their loan refinance opportunities. Although we have expanded as a lending service provider, our dedication to that mission has remained the same.
An equity loan calculator is a great starting point when determining how much you can take out based on your home’s built-in equity. Our knowledgeable team of friendly lending Experts can help you determine a more defined amount you can leverage against your home’s built-in equity.
Because our representatives come from the same communities we serve, we are familiarized with our clients’ needs. Combine our customer-centric approach with our efficient in-house writing process, and we can get you into your dream home in as little as two weeks. Give us a call today at 866-221-1926 to speak with one of our knowledgeable lending Experts, whose mission is to get you the best deal possible on your loan. We can also be reached through our online chat service to find out how you can leverage your home’s equity to open a line of credit today.