HELOC Payment Calculator 2023
Your HELOC Payments
HELOC Payments Over Time
What You Should Know
- This HELOC Payment Calculator allows you to estimate your monthly HELOC payments as well as your total interest expense on your loan.
- A HELOC allows you to get a secured line of credit that uses your home equity as collateral.
- HELOC loans usually have an interest-only period and amortization period that are also known as the draw period and repayment period respectively.
About this HELOC Payment Calculator
Our HELOC monthly payment calculator determines the monthly payments on your HELOC for both draw and repayment periods. This HELOC Payment Calculator can provide valuable information by changing the inputs of the calculator. You can find the following information by using this calculator:
- Total Interest: The calculator can show you the total interest you will have to pay over the life of the loan and how this can change by altering the length of the loan.
- Interest Rate Change: If you are shopping around with different lenders, this calculator can be used to see the difference between payments with varying HELOC interest rates provided by lenders.
- Initial Monthly Payment: During the draw period only a minimum interest payment needs to be made, this allows you to plan the payments. If the monthly interest payments are under budget, you can choose to make partial principal repayments too, which will reduce the outstanding balance.
- Monthly Payment Difference: It is important to understand that the payment during the repayment period can be significantly higher than during the draw period. This may be a problem if you have other debt payments or a high debt-to-income (DTI) ratio. Using this calculator, you can avoid surprise increases in monthly payments by estimating 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. However, if the period is extended the total interest paid also increases.
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 up until the loan 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 - HELOC Payments During Draw Period
Suppose, you decided to get a HELOC loan. You need to withdraw $45,000 at a 7.75% interest rate. The following table provides the calculations necessary to estimate the minimum monthly HELOC payments during the Draw Period.
| Inputs | |
|---|---|
| Outstanding Balance | $45,000 |
| Interest Rate | 7.75% | Results |
| Monthly Draw Period Payment | $45,000 * (7.75% / 12) = $290.63 |
Note: If the loan balance is higher the next year, the payment is recalculated with the higher balance.
Your minimum monthly payment may change from month to month as your outstanding balance changes. In addition to that, most HELOCs have a variable interest rate, which means that the interest rate may also fluctuate affecting required monthly payments. It is important to note that a borrower can pay off their HELOC during the draw period, but they don’t have to. If a borrower wants to save on the interest expense by paying off their HELOC, they do not have to wait for the repayment period to start.
Repayment Period
When the repayment period starts, a borrower does not have access to the loan anymore. They cannot withdraw any more money, but they still have to pay off their debt. During this period both the outstanding balance and interest have to be repaid. The balance is amortized over the remaining period and the monthly payments may only change when the prime rate changes. The repayment period is usually 10 to 15 years, but it can also be negotiated with the lender.
Example - HELOC Payments During Repayment Period
Suppose, your Repayment Period on your HELOC is starting soon. You have an outstanding balance of $45,000, and your current HELOC interest rate is 7.75%. The Repayment Period is set for 10 years. The following table provides the calculations necessary to estimate the monthly HELOC payments during the Repayment Period.
| Inputs | |
|---|---|
| Outstanding Balance | $45,000 |
| Interest Rate | 7.75% |
| Length of Repayment Period | 10 Years | Results |
| Monthly Repayment Period Payment | $540.05 |
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, it may be beneficial to know the most common requirements. 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%.
Frequently Asked Questions
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 HELOC Calculator to determine the total eligible borrowing amount from your HELOC.
HELOC Limit Calculator
How Does HELOC Work?
A home equity line of credit lets you tap into the equity you own in the home allowing you to borrow funds based on this equity. It is not like a traditional loan where a lump sum is given at the onset of the loan, instead a HELOC functions like a credit card. You can take funds out of the HELOC and only need to make minimum interest payments on the balance, and can choose to pay back some of the principal. The structure of payments during the draw period is flexible allowing you to make the best use of your funds. Only in the repayment period, is the monthly payment constant and is required to be paid.
How to Get a HELOC?
There are many lenders who offer HELOC. If you are looking to get HELOC, you should ask your bank about it. It is important to shop around because some lenders may offer lower rates or favorable terms. It is also important to make sure that your credit score, LTV ratio and DTI ratio meet the requirements set by most lenders.
Is HELOC Interest Tax Deductible?
Just as interest expense on any loan, HELOC interest expense is tax deductible. Even though you can deduct HELOC interest expense from your taxable income, it is not always a good idea. If you choose to deduct HELOC interest from your income, you will have to itemize your deductions. If you do not have enough deductions itemized, you may end up paying more. You can use an income tax calculator to compare between itemized and standard deductions.
Is a HELOC a Good Idea?
Depending on how you plan to use the funds from the HELOC, it may be a good source of financing. In most cases, HELOCs are used for renovations, remodeling, and fixing the home. This helps increase the value of your home which will have long-term benefits and payoffs. However, if you use your HELOC for going on a vacation or buying luxury items, you can risk potentially losing your home if you cannot make your payments.
Advantages and Disadvantages of a HELOC
| Advantages | Disadvantages |
|---|---|
| Interest on a HELOC is tax-deductible. | Missing HELOC payments may result in foreclosure. |
| HELOC limits encourage controlled borrowing. | Variable interest rates may result in higher monthly HELOC payments. |
| Flexibility in repayments during the draw period. | Requires an LTV ratio of less than 80%. Has other financial restrictions. |
| HELOC fees can be waived sometimes. | Borrowers may be prone to overspending during the Draw Period. |
If you are planning to sell your house soon, a HELOC may not be a good idea. If you have a large balance on your HELOC and you decide to move then you will be required to pay back the loan with a single payment. If you sell the home, then paying back the HELOC will eat into profits and there can be an early closure fee if you close the HELOC within a few years of opening it.
What if I Cannot Pay Off My HELOC?
If you are unable to pay off your HELOC during the repayment period, you will be required to make a balloon payment at the end of the HELOC. 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.