How the Heloc Calculator Works
A home equity line of credit, or HELOC, lets you borrow against the equity in your home, a little like a credit card secured by your house. It has two phases. In the first, the draw period, you can borrow from the line and usually pay only the interest. In the second, the repayment period, you can no longer borrow, and you must pay back the balance with interest. The HELOC Calculator shows the payment in each phase, and the total cost.
What you enter
- Current value of your home and the mortgage you owe: the difference is your equity.
- Most the lender lends against your home: the combined loan-to-value limit, often 80% to 85%.
- Amount you plan to borrow: the calculator assumes you draw it at the start and keep it through the draw period.
- Interest rate: a HELOC rate usually changes with the market. Use today's rate.
- Draw period and repayment period: in years. A common setup is 10 years to draw, then 20 years to repay.
- Rate change when repayment starts: a way to test a higher rate for the repayment phase.
- Yearly fee: some lenders charge one during the draw period.
Step 1: the credit line
A lender will not lend against all of your equity. It limits the total of your mortgage and the HELOC to a share of the home's value:
credit line = home value x lender limit - mortgage
Step 2: the draw period
During the draw period, you pay only the interest on what you have borrowed. The balance does not go down:
monthly payment = amount borrowed x yearly rate / 12
This makes the payment low, but you are not paying off any of the debt.
Step 3: the repayment period
When the draw period ends, the balance is paid off in equal monthly payments over the repayment period. The payment is much higher, because it covers principal as well as interest. With a loan of P, a monthly rate r and n months:
monthly payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
This jump is called payment shock, and it surprises many borrowers.
A worked example
Your home is worth $400,000 and you owe $240,000. Your lender lends up to 85% of the value, so your credit line is $400,000 x 85% - $240,000 = $100,000. You borrow $50,000 at 8.5%, with a 10-year draw period and a 20-year repayment period. There is a $50 yearly fee.
| Result | Amount |
|---|---|
| Payment in the draw period (interest only) | $354.17 a month |
| Payment in the repayment period | $433.91 a month |
| Payment goes up by | $79.74 |
| Total interest over 30 years | $96,638.79 |
| Fees ($50 for 10 years) | $500 |
| Total cost of borrowing | $97,138.79 |
Notice that after 10 years of payments, you still owe the full $50,000. In the repayment period, the first year has $4,212 of interest but only $995 of principal.
Chart: the monthly payment over time
Years 1-10 ████████████████████████████████ $354.17 (interest only) Years 11-30 ████████████████████████████████████████ $433.91 (interest and principal)
Why the rate matters: it can change
Most HELOCs have a variable rate. If the market rate rises, your payments rise too. This table shows the same loan if the rate were higher for the whole time:
| Rate | Draw period payment | Repayment payment | Total interest |
|---|---|---|---|
| 8.5% | $354 | $434 | $96,639 |
| 9.5% | $396 | $466 | $109,356 |
| 10.5% | $438 | $499 | $122,306 |
| 11.5% | $479 | $533 | $135,472 |
If the rate rises 2 points only when repayment begins, the repayment payment is $499.19 and the total interest is $112,305.59.
Tips
- Pay some principal during the draw period, if you can. It lowers the balance and softens the payment jump.
- Borrow only what you need. You pay interest only on what you draw, but a big line is a temptation.
- Remember the home is the security. If you cannot pay, the lender can take your home.
- Compare with a home equity loan, which has a fixed rate and a fixed payment from day one.
What this calculator does not include
- Changes in the rate during the loan, except the one you test at the start of repayment.
- Borrowing and repaying in several steps. The calculator assumes one draw at the start.
- Closing costs, appraisal fees and any fee to close the line early.
- Rate caps and minimum payment rules that some lenders use.
This tool gives an estimate for general information only. It is not financial advice. Your lender can give you the exact terms, including the rate index and caps.