HELOC Payment Calculator

How to calculate HELOC payments?

A Home Equity Line of Credit (HELOC) payment is based on a variable interest rate, typically an index plus a margin. Payments vary depending on whether you are in the draw or repayment period.

During the draw period, payments are often interest-only. The formula for interest-only monthly payment is: Interest-Only Payment = (Outstanding Balance × Monthly Interest Rate). For the repayment period, payments are amortized: Amortizing Payment = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].

Using the HELOC calculator: an example

Let's calculate the monthly interest-only payment for a $50,000 HELOC with a 4.75% index and 2.00% margin.

Step-by-step calculation:

1. Assume an outstanding balance (P) of $50,000.
2. Calculate the monthly interest rate: (4.75% + 2.00%) / 12 = 6.75% / 12 = 0.005625.
3. Compute the monthly interest-only payment: $50,000 × 0.005625 = $281.25.

This example illustrates a typical interest-only payment during the draw period.

Frequently Asked Questions

Q: What is the difference between a HELOC and a home equity loan?

A HELOC is a revolving line of credit, similar to a credit card, allowing you to borrow as needed up to a limit. A home equity loan is a lump-sum loan with a fixed interest rate.

Q: How does the variable interest rate work?

The rate is tied to an index (like the prime rate) plus a fixed margin. As the index changes, your interest rate and payments will fluctuate.

Q: Can I make principal payments during the draw period?

Yes, you can make principal payments at any time, even if only interest-only payments are required. This can reduce your outstanding balance and future interest.