HELOC Payment Calculator (Draw Period)
Your Estimated Monthly Draw Period Payment:
$0.00
Understanding Your HELOC Draw Period Payment
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. It typically has two main phases: the draw period and the repayment period. This calculator focuses on the draw period, which is the initial phase where you can borrow funds up to your credit limit.
What is the Draw Period?
During the draw period, which usually lasts for several years (e.g., 5 to 10 years), you can access your credit line as needed. You can draw funds, repay them, and draw them again, similar to a credit card. However, during this time, you are typically only required to make interest-only payments on the amount you have borrowed.
How the Draw Period Payment is Calculated
The calculation for your monthly payment during the draw period is straightforward. It is based on the interest that accrues on your outstanding balance. The formula used is:
Monthly Draw Period Payment = (Outstanding Balance × Annual Interest Rate) / 12
Let's break down the components:
- Outstanding Balance: This is the total amount of money you have borrowed from your HELOC at any given time. For simplicity, this calculator assumes you are utilizing the full HELOC Credit Line Amount you input.
- Annual Interest Rate: This is the yearly percentage rate charged by the lender. It is crucial to note that HELOCs often have variable interest rates, meaning this rate can change over time, affecting your monthly payment.
- / 12: We divide by 12 to convert the annual interest charge into a monthly payment.
Why Interest-Only Payments?
Lenders offer interest-only payments during the draw period to provide flexibility. It keeps your initial payments lower, allowing homeowners to manage cash flow while potentially using the borrowed funds for renovations, debt consolidation, or other significant expenses. However, it's important to remember that you are not paying down the principal during this phase, so your total debt remains the same.
What Happens After the Draw Period?
Once the draw period ends, you typically enter the repayment period. During this phase, you can no longer draw funds. Your payments will increase significantly as they will include both principal and interest, designed to pay off the outstanding balance over a set term (e.g., 10 to 20 years).
Using This Calculator
Enter your HELOC's total credit line amount and the current annual interest rate. The calculator will provide an estimate of your minimum monthly payment if you were to draw the full credit line amount. Remember, if your outstanding balance is less than the full credit line, your actual interest-only payment will be lower.
Disclaimer: This calculator provides an estimation for informational purposes only. Actual payments may vary based on your lender's terms, variable interest rates, fees, and your specific outstanding balance. Always consult your HELOC agreement and financial advisor for precise figures.