How a HELOC payment works
A home equity line of credit (HELOC) is a reusable line of credit secured by your home. It has two phases. During the draw period (the CFPB uses 10 years as an example) you can borrow up to your limit, repay and borrow again. Many plans let you pay interest only during this phase. When the draw period ends you enter the repayment period: you can no longer borrow, and you pay back principal and interest. The CFPB says repayment is often spread over 10 to 20 years (its HELOC booklet says 10 or 15), and some plans instead require the whole balance at once as a balloon payment. Check your plan; the 20-year default here is just an example.
The calculator uses these formulas:
- Your rate = index + margin. The CFPB lists the U.S. prime rate and the Constant Maturity Treasury rate as common indexes. Enter the index and margin from your lender's disclosure.
- Interest-only payment = balance × rate ÷ 12.
- Principal + interest during the draw = the fixed payment that would repay the balance over the remaining draw and repayment months, recalculated after each new draw.
- Repayment payment = the fixed payment that repays the balance left at the end of the draw over the repayment period, at the repayment rate (your rate plus any change you enter).
- Maximum line = home value × the lender's combined loan-to-value limit − your mortgage balance. The CFPB says lenders generally lend a percentage of appraised value minus what you owe; each lender sets that percentage.
Worked example
Your home is worth $700,000 and you owe $350,000 on the mortgage. A lender with an 85% combined limit could offer up to $700,000 × 85% − $350,000 = $245,000. You open a $100,000 line, draw $60,000 for a kitchen renovation, and your rate is prime plus a margin, 7.5% in this example. You pay interest only for 10 years, then repay over 20.
| Scenario | Draw period | Repayment | Jump | Total interest |
|---|---|---|---|---|
| Rate stays 7.5% | $375/mo | $483/mo | +29% | ≈ $101,000 |
| Rate rises to 9.5% by repayment | $375/mo | $559/mo | +49% | ≈ $119,200 |
| Pay principal + interest from day one (7.5%) | $420/mo | $420/mo | 0% | lower; balance ≈ $52,100 at year 10 |
Ten years of interest-only payments cost $45,000 and leave the full $60,000 still owed. That is why the payment jumps. Paying some principal during the draw costs about $45 more a month at first but avoids the shock.
Taxes
IRS Publication 936 (2025) says interest on home equity loans and lines of credit is deductible only if the borrowed money is used to buy, build or substantially improve the home that secures the loan, and only if you itemize. Using a HELOC to pay off credit cards or buy a car does not qualify. The mortgage interest deduction calculator shows whether itemizing helps you at all.
Edge cases
- Introductory rates: some lenders offer a low teaser rate for a short period, such as six months. Model the rate that applies after it ends.
- Rate caps and floors: a plan may limit how high or low the rate can go. The CFPB booklet lists these among the terms to compare. Enter a rate change that stays within your cap.
- Fees: appraisal, application, annual or inactivity fees are not included. Ask for them on your disclosure.
- Minimum payments vary by plan. Your lender may require more than interest only.
What to do next
Check how much equity you really have with the home equity calculator, compare a fixed-rate option with the cash-out refinance calculator, and read HELOC vs home equity loan vs cash-out refinance.