If you’re a homeowner wondering where you’re going to get the extra cash needed for a big expense like a home renovation, tapping into your home’s equity might be the answer. A Home Equity Line of Credit (HELOC) is a revolving credit line that lets you borrow money against the equity of your home, for a specific period of time. Let's take a closer look at how a HELOC works and how much money you can typically access with this type of loan.

How a HELOC Works

Before figuring out how much money you can get with a HELOC, it helps to have a better understanding of how it works.

A HELOC is a flexible form of borrowing money that allows a homeowner to tap into the equity you've built up in your home. It operates similarly to a credit card, where borrowers are approved for a line of credit and can draw funds as needed, up to a predetermined limit, during a specified draw period.

Because a HELOC is backed by a valuable asset (your home), the HELOC is considered secured debt that generally has a lower interest rate than unsecured debt, like a credit card or personal loan. Sometimes there are closing costs included in a HELOC, which can be anywhere from 2-5% of the total value of the loan. However, with a Partner Colorado HELOC, there are no closing costs in most cases.¹

Here are some other factors to help you better understand how a HELOC works.

Approval and Terms
Once approved, you're given access to a line of credit, usually for a period of 5 to 10 years, known as the draw period. During this time, you can borrow funds as needed, up to your approved limit.

Interest Rates
HELOCs typically have variable interest rates, which means your monthly payments may fluctuate. Some lenders may offer introductory fixed-rate periods, after which the rate converts to a variable rate. They may also have a fixed-rate option with a slightly higher interest rate.

Draw Period
During the draw period, you can use your HELOC funds for various purposes. During this period, your monthly payments may either be interest only or 1% of the outstanding balance.

Repayment Period
After the draw period ends, you enter the repayment period, which is usually 10 to 20 years. During this time, you can no longer borrow funds from the HELOC, and you must repay the outstanding balance, typically through monthly payments of principal and interest.

Accessing Funds
You can access HELOC funds in several ways, including checks, cards linked to the HELOC account, online transfers, or in-person withdrawals at your credit union.

How Much Money Can You Get with a HELOC

The amount of money you can take out through a HELOC depends on the value of your home. Lenders allow you to borrow up to a percentage of the current market value of your home, minus any outstanding home loans on the property.

Equity Assessment
Many lenders will only allow homeowners to borrower up to a loan-to-value (LTV) ratio of 80% or lower. At Partner Colorado we allow up to 85% LTV on most HELOCs.²

A quick way to find a good estimate of the maximum amount you can borrow with a HELOC is to multiply your home’s value by the highest LTV the lender allows. For example, if your home is valued at $450,000 and your lender allows you to borrow up to 85% of your home’s value, multiply 450,000 by 0.85. This will give you a value of $382,500. Subtracting the amount you still owe on any outstanding mortgages (let’s say $200,000) gives you the maximum amount you can borrow using a HELOC, which is $182,500.

You can also use our free home equity calculator to do the work for you.

Creditworthiness
Lenders also consider your credit score, income, employment history, and other financial factors when determining your eligibility for a HELOC and the amount you can borrow.

Debt-to-Income Ratio
Lenders assess your debt-to-income ratio, which compares your monthly debt payments to your gross monthly income, to ensure you can afford the additional debt from the HELOC payments.

Lender Policies
Each lender has its own underwriting criteria and policies regarding HELOCs, so the amount you can borrow may vary between lenders.

A HELOC provides homeowners with a flexible borrowing option by allowing you to access funds based on the equity in your home. The amount you can borrow depends on factors such as your home's value, creditworthiness, debt-to-income ratio, and lender policies. Before applying for a HELOC, it's essential to understand how they work, assess your financial situation, and shop around to find the best terms and rates for your needs.

¹No closing costs in most cases. An upfront appraisal fee of $450.00 may be required at member expense on loans greater than $75,000 or loan-to-value exceeding 70%. Refinancing a present loan held by Partner Colorado Credit Union is excluded from this offer. Closing costs include settlement fees, flood determination fee, title search, government fees and recording charges, taxes, and when required, appraisal fees, title insurance and any fees associated with condominium properties; no closing costs on HELOC subject to change anytime without notice. For loan amounts up to $250,000, closing costs typically range between $250 and $1,800. Closing costs depend on the location of the property, property type and the amount of the Equity Line. ²Certain restrictions apply.