A Home Equity Line of Credit (HELOC) is a flexible revolving credit line secured by the equity in your home. It allows you to borrow funds as needed up to a certain limit, often during a draw period, and then repay it over a set period. Unlike a home equity loan which disburses a lump sum, a HELOC works more like a credit card, where you can draw, repay, and redraw funds. Understanding how interest is calculated on a HELOC is crucial for effective financial planning.
How HELOC Interest is Calculated
The interest on a HELOC is typically calculated based on the outstanding balance you've drawn from the line of credit and the applicable interest rate. Most HELOCs have variable interest rates, meaning the rate can fluctuate based on market conditions (often tied to a benchmark rate like the prime rate). The interest is usually calculated daily and compounded monthly.
The formula used in this calculator is a simplified representation of monthly interest accrual, assuming a fixed rate for the calculation period:
Daily Periodic Rate: This is calculated by dividing the Annual Interest Rate by 365 (or sometimes 360 days, depending on the lender).
Daily Rate = Annual Interest Rate / 365
Daily Balance: The amount you have drawn from your HELOC on any given day.
Monthly Interest Accrued: The sum of the Daily Interest Charges over a month. For simplicity in this calculator, we approximate this by:
Monthly Interest = Drawn Amount * (Annual Interest Rate / 100) / 12
Total Interest Paid: This is the sum of all monthly interest payments over the loan term.
Total Interest = Monthly Interest * Loan Term (in Months)
Example Scenario
Let's say you have a HELOC with a credit limit of $100,000. You've drawn $50,000 and your current annual interest rate is 6.5%. You plan to pay this off over a term of 10 years (120 months).
Total Interest Paid = $270.83 * 120 months = $32,499.60
This means that over 10 years, you would pay approximately $32,500 in interest on the $50,000 you borrowed, assuming the interest rate remains constant and you only pay the interest during the repayment period.
When to Use a HELOC Calculator
Estimating Costs: Determine how much interest you might pay based on your drawn amount and the prevailing rates.
Budgeting: Plan your monthly payments, especially if you are in the interest-only draw period or the repayment period.
Comparing Offers: Evaluate different HELOC offers from various lenders by comparing potential interest costs.
Financial Planning: Understand the long-term financial commitment of using your home equity.
Remember that HELOC rates are often variable, so your actual interest payments could be higher or lower than the estimate provided by this calculator. It's always advisable to consult with your lender for the most accurate figures and to understand the full terms and conditions of your HELOC agreement.
function calculateHELOCInterest() {
var creditLine = parseFloat(document.getElementById("creditLine").value);
var drawnAmount = parseFloat(document.getElementById("drawnAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultValueElement = document.getElementById("result-value");
var resultMessageElement = document.getElementById("result-message");
// Clear previous messages and styling
resultValueElement.textContent = "$0.00";
resultMessageElement.textContent = "";
document.getElementById("result").style.borderColor = "#28a745"; // Default success green
// Input validation
if (isNaN(creditLine) || creditLine <= 0) {
resultMessageElement.textContent = "Please enter a valid HELOC credit line amount.";
return;
}
if (isNaN(drawnAmount) || drawnAmount creditLine) {
resultMessageElement.textContent = "Amount drawn cannot exceed the HELOC credit line.";
document.getElementById("result").style.borderColor = "#dc3545"; // Error red
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
resultMessageElement.textContent = "Please enter a valid annual interest rate.";
document.getElementById("result").style.borderColor = "#dc3545"; // Error red
return;
}
if (isNaN(loanTerm) || loanTerm <= 0) {
resultMessageElement.textContent = "Please enter a valid loan term in months.";
document.getElementById("result").style.borderColor = "#dc3545"; // Error red
return;
}
// Calculation
var monthlyInterestRate = annualInterestRate / 100 / 12;
var monthlyInterestPayment = drawnAmount * monthlyInterestRate;
var totalInterestPaid = monthlyInterestPayment * loanTerm;
// Display result
resultValueElement.textContent = "$" + totalInterestPaid.toFixed(2);
resultMessageElement.textContent = "Estimated total interest over " + loanTerm + " months.";
document.getElementById("result").style.borderColor = "#28a745"; // Success green
}