HELOC Monthly Payment Calculator
Calculate your interest-only draw period payments and full principal repayment costs.
Understanding Your HELOC Monthly Payments
A Home Equity Line of Credit (HELOC) is a unique financial tool that functions differently than a standard fixed-rate mortgage. Understanding how your payments shift from the "draw period" to the "repayment period" is crucial for long-term financial stability.
How a HELOC Works: The Two Phases
Most HELOCs are structured in two distinct stages. This calculator helps you visualize the massive jump in monthly obligations that often occurs when transitioning between them.
1. The Draw Period
Typically lasting 5 to 10 years, the draw period allows you to borrow money as needed up to your credit limit. During this time, most lenders only require interest-only payments. While this keeps your monthly costs low, it means you aren't actually paying down the debt you owe.
2. The Repayment Period
Once the draw period ends, you can no longer borrow money. You enter the repayment period (often 10 to 20 years), where you must pay back both the principal balance and the interest. This transition can lead to "payment shock" because your monthly bill may double or triple.
How to Calculate HELOC Payments
To calculate the interest-only payment, use this formula:
(Balance × Annual Interest Rate) / 12 Months
To calculate the fully amortizing repayment period payment, we use the standard amortization formula:
P = [r(1 + r)^n] / [(1 + r)^n - 1] * L
Where L is the loan balance, r is the monthly interest rate, and n is the total number of months in the repayment period.
Example Calculation
Imagine you have a $50,000 balance on a HELOC with an 8% interest rate. Your draw period has ended, and you have a 20-year repayment term remaining.
- Interest-Only Payment: ($50,000 × 0.08) / 12 = $333.33
- Fully Amortizing Payment: Using the formula above, your new payment would be $418.22.
In this scenario, your monthly payment increases by nearly 25%. If your interest rate is variable (which most HELOCs are), this payment could climb even higher if market rates rise.
Factors That Affect Your HELOC Costs
- Variable Rates: Most HELOCs are tied to the Prime Rate. If the Federal Reserve raises rates, your HELOC payment will increase almost immediately.
- Credit Score: Higher credit scores typically secure lower margins over the Prime Rate, saving you thousands over the life of the loan.
- Utilization: Only paying the minimum interest-only payment during the draw period maximizes the total interest you will pay over time.