Model a home equity line of credit through its interest-only draw and repayment phases.
A HELOC is a revolving credit line secured by your home. During the draw period (typically 5–10 years) you can borrow and repay freely; minimum payments are usually interest-only on whatever balance is outstanding. When the draw period ends, the outstanding balance converts to a fully amortizing loan for the repayment period (typically 10–20 years). The transition from interest-only to fully amortizing payments is often a significant payment shock — commonly 50–100% higher — which this calculator quantifies so you can plan ahead.
Draw period: interest-only payment
Monthly interest-only = Balance × (Draw rate ÷ 12)
Repayment period: amortizing payment
Repayment payment = P × r(1+r)ⁿ / ((1+r)ⁿ − 1)
HELOC rates are variable in practice. This calculator uses fixed rates for each phase as a scenario model. Actual payments will vary with market rate changes.
Yes. Most HELOCs allow (and even encourage) principal payments during the draw period — they reduce your balance and therefore your interest. This calculator assumes interest-only payments as a conservative baseline. Any principal repayment you make will lower the repayment phase payments.
Some lenders allow refinancing the HELOC into a home equity loan at the end of the draw period. Others require the balance to be repaid in full (balloon). Review your HELOC agreement carefully. The payment shock shown in this calculator is the reason financial advisors recommend planning for it years in advance.
Under current US tax law, HELOC interest is deductible only when the funds are used to buy, build or substantially improve the home securing the loan. Interest on HELOC funds used for other purposes (debt consolidation, vacations) is not deductible.
A home equity loan gives you a lump sum at a fixed rate and fixed term — payments start immediately. A HELOC is a revolving line at a variable rate with a draw phase first. Use the Home Equity Loan Calculator to compare a lump sum fixed option side by side.