HELOC Repayment Calculator 2024
What You Should Know
- This HELOC Repayment Calculator allows you to estimate your monthly HELOC payments for draw and repayment periods, and your total loan interest expense.
- A Home Equity Line of Credit allows you to get a secured line of credit that uses your home equity as collateral.
- HELOCs usually consist of a draw period and a repayment period. During the draw period, the borrower only needs to pay interest. The borrower must pay off the principal and interest during the repayment period.
About this HELOC Repayment Calculator
This HELOC repayment calculator determines the monthly payments on your HELOC for both draw and repayment periods. It can also provide you with valuable insights into different HELOC offers. You can find the following information by using this calculator:
- Total Interest: The calculator can show you the total interest you will pay over the life of the loan. You can adjust the calculator’s inputs to see how your total interest changes.
- Interest Rate Change: If you are shopping around with different lenders, this calculator can show you the difference between payments and interest charges with varying HELOC interest rates provided by lenders.
- Draw Period Payments: During the draw period, you have to pay off interest only. You can still repay your principal, which will decrease your total interest charged and your future monthly payments. The calculator will show you the minimum amount you have to contribute monthly.
- Repayment Period Payments: Payments during the repayment period can be significantly higher than those made during the draw period. This may be a problem if you have a high debt-to-income (DTI) ratio, which means that you have other debt payments to cover. Using this calculator, you can estimate your payments ahead of time.
- Budgeting: During the repayment period, if the monthly payment is too high, you can choose to increase the repayment period, resulting in lower monthly payments. The total interest cost will increase if the repayment period is increased.
How to Calculate HELOC Payments
Unlike regular loans, the term of any Home Equity Line of Credit (HELOC) is composed of two periods: the draw period and the repayment period. During the draw period, the borrower pays only the interest rate on the outstanding principal. After the draw period, the repayment period begins. During the repayment period, the borrower pays off their loan until it is fully paid off.
Draw Period
The draw period is the phase where you can borrow funds from the HELOC using a bank transfer, a check, or even a form of a credit card. The draw period is usually 5 to 10 years, but it can be longer or shorter depending on the agreement between the lender and the borrower. During the draw period, a borrower is only required to pay the interest charge on the outstanding balance and not the principal itself.
Example - Draw Period HELOC Payments
Suppose you get a HELOC loan. Your HELOC allows you to withdraw $45,000 at a 7.75% interest rate for a 5-year draw period and a 10-year repayment period. This section shows how to calculate a HELOC payment during the draw period.
Your minimum monthly payment is the interest payment. To calculate the monthly interest payment, you can simply multiply the principal amount by the monthly interest rate.
You can contribute more than the minimum monthly payment. If you pay off a part of your principal during the draw period, your minimum monthly payment will decrease proportionally to the decrease in principal. If your HELOC has a variable interest rate, then the required monthly payments may also fluctuate based on the prime rate.
Repayment Period
When the repayment period starts, a borrower cannot access the loan anymore. During this period, the principal and interest must be repaid. The balance is amortized over the remaining period, and the monthly payments may only change if you contribute more than the minimum payment or when the prime rate changes. The HELOC repayment period is usually 10 to 15 years, but it can be negotiated with the lender.
Example - Repayment Period HELOC Payments
Your HELOC repayment period is 10 years. You have an outstanding balance of $45,000, and your current HELOC rate is 7.75%. The repayment period can be considered a simple loan, and the payment can be calculated using the payment formula for a simple loan.
You can contribute more than the minimum monthly payment, lowering future payments. Depending on the rate type of your HELOC, your monthly payments may fluctuate. Assuming the interest rate unchanged, you can expect your monthly payments to be $540.05.
Frequently Asked Questions
What Are HELOC Requirements?
Different HELOC lenders may have different requirements depending on the market sentiment, home value, and other factors a lender may consider. Even though HELOC requirements usually differ from one lender to another, knowing the most common requirements may be beneficial. The most common requirements HELOC lenders look at are as follows:
- Loan-to-value (LTV) ratio less than 80%.
- Credit score greater than 620.
- Debt-to-income (DTI) ratio less than 40%.
How Much HELOC Can I Get?
To determine how much you can borrow from your HELOC, you calculate the maximum HELOC amount allowed, which is usually up to 80% of home value, and subtract the outstanding balance. You can use our free HELOC Calculator to determine the total eligible borrowing amount from your HELOC.
HELOC Limit Calculator
How Does a HELOC Work?
A home equity line of credit lets you get a loan using your home equity as collateral. A HELOC is like a credit card. You can take funds out of the HELOC and only need to make minimum interest payments on the balance. The structure of payments during the draw period is flexible, allowing you to make the best use of your funds. After the draw period, the repayment period starts. During the repayment period, your monthly payment will include principal and interest payments.
Our free HELOC calculator allows you to estimate your draw and repayment period payments as well as other details related to your HELOC loan.
Is HELOC Interest Tax Deductible?
HELOC interest expense is tax deductible, but deducting your HELOC interest may not always be a good idea. If you choose to deduct HELOC interest from your income, you must itemize your deductions. If you do not have enough deductions itemized, your itemized deductions may be smaller than the standard deduction.
What if I Cannot Pay Off My HELOC?
You will be required to make a balloon payment at the end of the HELOC if you miss any of your payments. A balloon payment is a lump sum payment to pay back the principal or borrowed funds during the life of the loan. If you cannot make a balloon payment, consider negotiating with your lender to extend the HELOC repayment period or refinance the HELOC.