HELOC Guide
Complete guide to understanding and using home equity lines of credit effectively.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit that allows you to borrow against your home's equity. It works like a credit card - you have a credit limit and can borrow, repay, and borrow again as needed during the draw period.
During the draw period (typically 5-10 years), you can withdraw funds as needed and usually only need to make interest payments. During the repayment period (typically 10-20 years), you must pay both principal and interest.
How to Calculate HELOC Payments
Interest-Only Period
During this period, you only pay interest on the outstanding balance:
Monthly Payment = Outstanding Balance × (Annual Interest Rate ÷ 12)Example: If you owe $50,000 at 5% APR: $50,000 × (0.05 ÷ 12) = $208.33 per month
Repayment Period
During this period, you pay both principal and interest using amortization formulas:
Monthly Payment = P × [r(1+r)^n] / [(1+r)^n - 1]Where P = principal, r = monthly rate, n = number of payments
Factors That Affect HELOC Payments
Credit Limit
The maximum amount you can borrow, typically 80-90% of your home's value minus the balance of your primary mortgage.
Interest Rate
HELOC rates are typically variable and tied to the prime rate plus a margin. They can change monthly or quarterly.
Draw Period
The duration during which you can withdraw funds and make interest-only payments, typically 5-10 years.
Repayment Period
The duration during which you must pay both principal and interest, typically 10-20 years.
Tips for Using HELOCs Effectively
Use for Home Improvements
Interest may be tax-deductible when used for home improvements.
Plan for the Repayment Period
Make sure you can handle the higher payments when the repayment period begins.
Consider Extra Payments
Most HELOCs allow extra payments without penalties to reduce total interest.
Avoid Consumer Spending
Don't use HELOCs for consumer spending or luxuries that don't increase your home's value.
Try Our Calculator
Use our free HELOC calculator to estimate your payments and explore different scenarios.
Calculate HELOC Payments