HELOC payoff calculator

What these numbers mean

The first figure is what you pay now: interest only, which covers the cost of the borrowing and reduces nothing. The second is what the same balance requires once it has to be repaid over the repayment period.

The gap between them is the whole point of this page. Nothing about the account changes until the draw period ends, and then the payment steps up in a single month. It is a scheduled event, not a rate rise, and it is in your agreement.

Paying principal during the draw period is what shrinks the step, because the repayment payment is calculated on whatever is left. Every dollar of principal paid now is a dollar that does not need amortising later.

This page does not tell you what to do about it. Refinancing, paying down, or simply absorbing the higher payment are all reasonable depending on your equity, your rate and your income.

How this is calculated

• The interest-only payment is the balance multiplied by the annual rate, divided by 12. Nothing goes to principal, so the balance is unchanged at the end of the draw period.
• The repayment payment is the standard amortising payment, M = P x i(1+i)^n / ((1+i)^n - 1), applied to that same balance over the repayment months.
• Total interest is the interest-only payments across the remaining draw period plus the interest across the full repayment schedule.

A single rate is used throughout. That is a real simplification: most HELOCs are variable and tied to the prime rate published in the Wall Street Journal plus a lender margin, so both payments move over time.

HELOC disclosure requirements, including the payment terms and the variable-rate features, are set by Regulation Z at 12 CFR 1026.40.

What this does not account for

• A variable rate. The single largest omission. Both payments move with prime, and over a twenty-year repayment that dominates everything else here.
• Further draws. Anything you borrow before the draw period ends increases the balance that has to be amortised.
• Principal paid during the draw. This assumes interest-only throughout. Paying principal reduces the step and is not modelled.
• Balloon structures. Some HELOCs require the full balance in one payment when the draw period ends, with no repayment phase at all. Check which you have.
• Annual fees and inactivity fees, and the closing costs of any refinance you might use to avoid the jump.
• Rate caps. Most HELOCs carry a lifetime cap that bounds how far the rate can rise. Yours is in your agreement and is worth knowing.

Questions

What is the draw period and why does the payment jump?

A HELOC has two phases. During the draw period, typically ten years, you can borrow against the line and the required payment is often interest only. When it ends you cannot draw any more, and the balance has to be repaid over the repayment period, typically ten to twenty years. The payment jumps because it suddenly includes principal, on a balance that interest-only payments never reduced.

How much can the payment actually rise?

Frequently double or more. An interest-only payment on 80,000 dollars at 8.5 percent is about 567 a month. Amortised over twenty years the same balance requires roughly 694, and over ten years roughly 992. The exact jump depends on your repayment term, which is in your agreement.

Is my rate fixed?

Usually not. Most HELOCs carry a variable rate tied to the prime rate plus a margin, so the payment moves with rate changes during both phases. Some lenders offer a fixed-rate conversion on part of the balance. This page models one rate throughout, which is a simplification worth remembering over a twenty-year repayment.

Can I avoid the jump?

The common routes are paying down principal during the draw period so there is less to amortise, refinancing the HELOC into a new line or a home equity loan before the draw ends, or folding it into a first mortgage refinance. Each has costs and each depends on your equity and credit at the time. This page shows what the jump would be so the question can be asked early rather than discovered.

What happens if I only ever pay the interest?

The balance never falls. Interest-only payments cover the cost of the borrowing and nothing else, so on the day the draw period ends you owe exactly what you drew. That is not a fault in the product, it is what interest-only means, but it is the reason the transition is a shock rather than a step.