HELOC Payment Calculator
Estimate your available equity and interest-only monthly payments.
*Calculations are based on the "Draw Period" interest-only phase. Principal repayment will increase costs later.
Understanding Your HELOC Payments
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. Unlike a standard home equity loan, which provides a lump sum, a HELOC allows you to borrow as needed, much like a credit card.
How This Calculator Works
To determine your HELOC potential, we use three primary factors:
- Combined Loan-to-Value (CLTV): Lenders typically allow you to borrow up to 80-85% of your home's appraised value, minus what you still owe on your first mortgage.
- The Draw Period: Most HELOCs have a 10-year draw period where you are only required to pay interest on the amount you actually use.
- The Interest Rate: HELOCs usually have variable interest rates tied to the Prime Rate.
The Math Behind the Calculation
We use the following formula to determine your maximum HELOC limit:
(Home Value × LTV Percentage) – Current Mortgage Balance = HELOC Limit
Example: If your home is worth $500,000 and the lender allows 80% LTV ($400,000), and you owe $300,000 on your mortgage, your HELOC limit would be $100,000.
Interest-Only Monthly Payment Formula
During the draw period, your payment is calculated as:
(Amount Drawn × Annual Interest Rate) / 12 Months = Monthly Payment
Draw Period vs. Repayment Period
It is crucial to remember that a HELOC has two phases. During the Draw Period (usually 10 years), you can borrow money and often pay only interest. Once the Repayment Period begins (usually 15-20 years), you can no longer borrow money, and you must pay back both principal and interest, which can significantly increase your monthly obligation.
Pros and Cons of a HELOC
Pros: Flexible borrowing, interest is only paid on what you use, and interest rates are typically lower than credit cards.
Cons: Variable rates mean your payment can go up, your home is used as collateral, and the transition to the repayment period can cause "payment shock."