Understanding Your Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) is a revolving credit line that allows homeowners to borrow money against the equity they've built in their homes. Unlike a home equity loan which provides a lump sum, a HELOC works more like a credit card: you can draw funds as needed, repay them, and then borrow again, up to your credit limit. This flexibility makes HELOCs ideal for ongoing expenses, renovations, or unexpected costs.
How a HELOC Works
HELOCs typically have two phases:
Draw Period: This is the initial phase (often 5-10 years) during which you can borrow funds. During this period, you usually only need to make interest-only payments on the amount you've drawn.
Repayment Period: After the draw period ends, you can no longer borrow money. You'll begin making principal and interest payments to repay the outstanding balance. This period can last 10-20 years or more.
Key Features and Considerations:
Variable Interest Rate: Most HELOCs have variable interest rates tied to a benchmark index (like the Prime Rate). This means your monthly payments can fluctuate over time.
Credit Limit: The maximum amount you can borrow is determined by your home's equity, your credit score, and the lender's policies.
Loan-to-Value (LTV): Lenders typically require that the total of your first mortgage and HELOC does not exceed a certain percentage of your home's value (often 80-85%).
HELOC Calculator Explained:
This calculator helps you estimate your potential monthly payments for a HELOC. Here's what each input means:
HELOC Amount: The total credit limit you are approved for.
Annual Interest Rate: The current annual interest rate on the HELOC. Remember, this is often variable and can change.
Draw Period (Years): The length of time you have to borrow funds. During this period, the calculator estimates your interest-only payment.
Repayment Period (Years): The length of time you have to pay back the principal and interest after the draw period ends.
Principal and Interest Payment (During Repayment Period): This is calculated using the standard loan amortization formula to determine the monthly payment required to pay off the entire HELOC amount over the specified repayment term. The formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
n = Total Number of Payments (Repayment Period in Years * 12)
This calculator primarily displays the interest-only payment, as that's the typical payment during the draw phase. To see the P&I payment for the repayment phase, you would need to adjust the formula or use a more advanced amortization calculator. For simplicity, this calculator focuses on the estimated interest-only payment during the draw period.
Disclaimer: This calculator provides an estimate for informational purposes only. Actual HELOC terms and payments may vary. Consult with your lender for precise figures and terms.
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function calculateHELOC() {
var creditLine = parseFloat(document.getElementById("creditLine").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseInt(document.getElementById("loanTerm").value); // Draw period
var repaymentTerm = parseInt(document.getElementById("repaymentTerm").value); // Repayment period
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principalAndInterestPayment = creditLine * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPaymentsRepayment)) / (Math.pow(1 + monthlyInterestRate, numberOfPaymentsRepayment) – 1);
} else if (numberOfPaymentsRepayment > 0 && monthlyInterestRate === 0) {
principalAndInterestPayment = creditLine / numberOfPaymentsRepayment;
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