HELOC Payment Calculator
A line of credit has two phases and only the first one is cheap. During the draw period the payment covers interest and nothing else, so the balance never moves — then repayment starts and the payment jumps.
Payment while drawing
$354.17per month
- While drawing
- $354.17 a month
- After that
- $492.37 a month
- The jump
- $138.20
- Interest while drawing
- $42,500.00
- Total interest
- $81,126.56
- During the draw period the payment covers the interest and nothing else, so the balance does not move. Every pound of that is pure cost.
- The rate on a line of credit is normally variable, so both payments move with it. This assumes the rate you entered holds, which over a twenty-five year line it will not.
- It is secured on your home. A line of credit you cannot service is a repossession risk in a way an unsecured debt is not.
About home equity lines of credit
A line of credit is a facility rather than a loan. You draw on it as needed, and during the draw period — commonly ten years — the required payment is the interest only. On $50,000 at 8.5% that is $354.17 a month, and after ten years of paying it you still owe $50,000.
Then the draw period ends and the same balance has to amortize over what is left, often fifteen years. The payment goes to $492.37 — a jump of $138.20, or nearly forty per cent — on a date known from the outset. The trade calls it payment shock, and it is the single most common reason these go wrong.
The interest paid during the draw period is pure cost. Ten years at $354.17 is $42,500 handed over with the balance exactly where it started. Paying anything above the interest during the draw period changes the picture completely, and nothing stops you doing it.
The rate is normally variable, which this does not model — it assumes the rate you entered holds for twenty-five years, and over that period it certainly will not. Both payments move with it, and the repayment-phase one moves on a balance you can no longer avoid repaying.
It is secured on your home, which is why the rate is well below an unsecured loan and why the consequence of not paying is different in kind.
What it works out
- The interest-only payment during the draw period
- The amortizing payment after it, and the size of the jump
- What the draw period costs in interest for no progress
- Any draw and repayment period
The formula
Drawing: Payment = Balance × Rate ÷ 12 Repaying: the ordinary amortization formula over what is left
The draw-period payment is a single multiplication: the balance times the monthly rate. $50,000 at 8.5% is $354.17. Nothing in that payment touches the principal, which is why the balance is unchanged ten years later.
When the draw period ends, the calculation changes entirely. The same $50,000 now amortizes over fifteen years, which is $492.37 a month — $138.20 more, arriving in a single step on a date fixed at the outset.
The two phases together cost $81,127 of interest on $50,000 borrowed. $42,500 of that is the draw period, paid while making no progress at all.
None of which is hidden — it is in the agreement — but the shape is unusual enough that people plan around the first payment and are surprised by the second. Paying more than the interest during the draw period is always permitted and changes the outcome entirely.
- Balance
- What you have actually drawn, not the facility limit.
- Rate
- Normally variable and tied to a benchmark, so both payments move over time.
- Draw period
- How long you can borrow and pay interest only. Commonly ten years.
- Repayment period
- How long the balance then has to be cleared over. Commonly fifteen or twenty.
A worked example
$50,000 drawn at 8.5%, with a ten-year interest-only draw period followed by fifteen years of repayment.
That works out to $354.17 per month.
- While drawing
- $354.17 a month
- After that
- $492.37 a month
- The jump
- $138.20
- Interest while drawing
- $42,500.00
- Total interest
- $81,126.56
Questions
How is a HELOC payment calculated?
During the draw period it is the balance times the monthly rate — $354.17 on $50,000 at 8.5%. After it, the balance amortizes over the repayment period, which takes the payment to $492.37 over fifteen years.
What is payment shock?
The jump when the draw period ends and the payment goes from interest-only to fully amortizing. Here it is $138.20, nearly forty per cent, on a known date. On a shorter repayment period it can more than double.
Does the balance go down during the draw period?
Not if you pay only what is required. Ten years of interest-only payments here costs $42,500 and leaves the $50,000 balance exactly as it was.
Can I pay more than the interest?
Yes, always, and it is the single best thing to do with one of these. Anything above the interest comes off the balance, which lowers every future payment and takes the sting out of the transition.
Is a HELOC rate fixed?
Normally variable, tied to a benchmark rate. This assumes the rate you entered holds for the whole term, which over twenty-five years it will not. Some lenders let you fix part of the balance.
What is the difference between a HELOC and a home equity loan?
A loan is a lump sum at a fixed rate, repaid from day one. A line is a facility you draw on as needed, usually variable, with the interest-only period and the jump at the end. The line is more flexible and the loan is more predictable.
What happens if I cannot make the higher payment?
It is secured on your home, so the consequences are of a different kind to unsecured debt. Options — refinancing the balance, extending, or converting to a fixed loan — all get harder once payments have been missed, so the time to address it is before the transition rather than after.
Can the lender reduce my credit limit?
Generally yes, if property values fall or your circumstances change. A line is a facility rather than money you hold, and relying on being able to draw it later is relying on someone else's decision.