HELOC Effective APR Calculator
Calculated Rate Metrics:
Current Fully Indexed Rate: %
Promotional Period Rate: %
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How HELOC Rate Calculation Works
A Home Equity Line of Credit (HELOC) typically uses a variable pricing model. Unlike traditional fixed loans, the cost of borrowing is derived from two primary components: the index and the margin. Understanding how these interact is crucial for managing your home equity debt.
The Prime Index and The Margin
The Benchmark Index is most commonly the U.S. Prime Rate (as published in the Wall Street Journal). This fluctuates based on Federal Reserve movements. The Lender Margin is a fixed percentage added to the index by the bank. This margin is determined by your creditworthiness and the ratio of your existing debt to your home value.
- Index: The variable base rate (e.g., 8.50%).
- Margin: The lender's profit/risk spread (e.g., 1.50%).
- Fully Indexed Rate: Index + Margin = 10.00%.
Introductory Rates and Caps
Many lenders offer "teaser" rates or Promotional Discounts for the first 6 to 12 months. This reduces your initial cost. However, every HELOC must also have a Lifetime Maximum Cap, which is the absolute highest percentage the variable rate can reach, regardless of how much the Prime Index rises.
Example Calculation
If the current Prime Rate is 8.50% and your lender assigns you a margin of 1.00%, your fully indexed rate is 9.50%. If you are offered a 0.50% promotional discount for the first year, your starting rate would be 9.00%. If the market experiences significant inflation and the Prime Rate climbs to 12.00%, your rate would adjust to 13.00%, provided it remains below your lifetime ceiling.