HELOC Calculator

What is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit (HELOC) is a revolving line of credit that is secured by your home's equity. It works similarly to a credit card: you are approved for a specific limit, and you can borrow as much or as little as you need up to that limit, paying interest only on the amount you actually draw.

Because your home is used as collateral, HELOCs typically offer much lower interest rates than credit cards or personal loans.

The Two Phases of a HELOC

A HELOC operates in two distinct phases:

1. The Draw Period

Typically lasting 10 years, this is the phase where you can actively borrow money from your line of credit. During this period, lenders usually only require you to make interest-only payments on the outstanding balance, making the monthly payments highly affordable.

2. The Repayment Period

Usually lasting 15 to 20 years, this phase begins once the draw period ends. You can no longer borrow additional funds, and your monthly payment increases significantly because you must begin repaying both the principal balance and interest over the remaining term.

How HELOC Payments are Calculated

During the draw period, interest-only payments are calculated using:

\text{Monthly Payment} = \text{Drawn Balance} \times \frac{\text{APR}}{12}

During the repayment period, the remaining balance is amortized over the remaining months using the standard amortization formula.

Frequently Asked Questions

How much can I borrow with a HELOC?

Most lenders allow you to borrow up to 80% to 85% of your home's appraised value, minus your remaining mortgage balance.

What happens when the HELOC draw period ends?

Once the draw period ends, you enter the repayment phase. You can no longer draw money, and your monthly payments will increase because you will start paying back both the principal and interest.

Do HELOCs have fixed or variable rates?

Most HELOCs have variable interest rates, meaning your monthly payments can fluctuate over time based on market conditions. However, some lenders offer hybrid options to lock in fixed rates on specific balances.

Are there fees associated with a HELOC?

Yes. HELOCs can carry upfront costs similar to a standard mortgage (appraisal fees, application fees, closing costs) as well as annual maintenance fees and transaction fees for draws.

Report Tool or Give Us Suggestions