If you currently have a home equity line of credit or are thinking about opening one, my new HELOC calculator might come in handy.
In case you’re unaware, HELOCs have a draw period followed by a repayment period.
They are also calculated daily, unlike traditional mortgages that are calculated monthly.
During the draw period, in which you can take out money (multiple times up to your limit), the monthly payments are interest-only.
So you don’t actually have to pay back the principal (what you borrowed) initially.
During the repayment period, you must pay back what you borrowed along with interest, meaning payments will be a lot higher.
This HELOC calculator will show you the difference and combine the total interest expense to give you an idea of how much that HELOC borrowing actually costs.
HELOC Calculator
See your interest-only payment during the draw period and your fully-amortized payment once repayment begins, plus total interest over the life of your HELOC.
Results update automatically as you type — no submit button needed.
HELOC details
Results
Phase breakdown
You can also see the minimum payment during the draw period and the repayment period for a quick reference.
An important detail for the repayment period is the loan term, as banks and lenders offer HELOCs with various terms.
Some may give you 20 years to pay back the balance, while others might only give you 10.
Simply put, the shorter the loan term, the higher the monthly payment, all else equal.
So if you’re looking for the lowest payment on your HELOC, compare lenders and find the one that offers the longest repayment period.
Just keep in mind that the tradeoff is more interest paid over a longer loan term.
During the draw period, it doesn’t matter what the loan term is because it’s an interest-only payment. So term doesn’t affect monthly payments. But it will affect total interest paid.
Frequently Asked Questions
What is a HELOC?
It stands for home equity line of credit and works similar to a credit card, but uses your property as collateral.
It’s typically taken out as a second mortgage behind your first mortgage to pay for various expenses or to improve your home.
Like a credit card, you can borrow from it multiple times, pay it back, and borrow again, during the draw period.
What is the draw period vs. repayment period?
As the names imply, the draw period is when you can borrow, which can range from as little as three years to 10 years or longer.
Once the draw period ends, you have to pay back the loan during the repayment period, which can be 10 to 20 years depending on the lender.
Payments are interest-only during the draw period, and fully-amortized (principal and interest) during the repayment period.
How is interest calculated on a HELOC?
Unlike traditional mortgages, which are calculated monthly, HELOC interest accrues daily (like a credit card).
This means each day you carry a balance on your HELOC, interest is accruing.
As such, if you make a payment mid-month, it can reduce the total interest due. So the earlier you pay, the less you pay in interest.
This differs from regular mortgages, where payments are only applied once per month.
What are HELOC interest rates like?
They tend to be a several percentage points higher than 30-year fixed first mortgages.
For example, if a 30-year fixed is priced at 6% today, you might find that a HELOC rate is 8-9%.
This will vary based on credit score, loan-to-value ratio (LTV), loan amount, etc., similar to a first mortgage.
The less risk you present to the lender, the lower your HELOC rate. And vice versa.
Can a HELOC rate go up and down?
Yes. HELOCs are typically variable-rate loans tied to the prime rate, which is the same for everyone.
Then a margin is added to the prime rate to come up with your HELOC rate.
As noted, there are pricing adjustments for risk, and those can lead to a higher margin on top of the prime rate.
How can I shop for a cheap HELOC?
Since the prime rate is the same for everyone, you want to focus on the margin, the other component of the HELOC’s rate.
Shop lenders and ask for the margin to determine which offers the lowest rate.
But also pay attention to the loan term, especially the draw period, as some can be really short and you might want to draw upon your HELOC for a decade, not just three years.
Can I refinance a HELOC?
Yes. It’s possible to get a fresh HELOC by refinancing your existing HELOC or alternatively paying it off with your first mortgage.
For example, a homeowner with a first mortgage and a HELOC can apply for a rate and term refinance and combine the loans into one new loan.
But this generally only makes sense if mortgage rates are lower.
Where can I get a HELOC?
They are offered by all types of financial institutions, including banks, credit unions, and nonbank lenders (direct mortgage lenders).
Be sure to inquire about closing costs and any loan origination fees. Some companies charge next to nothing, while others will hit you with fees such as 1-2% of the loan amount.
Is there a minimum draw on a HELOC?
Often times you’re required to make an initial, minimum draw to open the HELOC, instead of just opening a line and not touching it.
This can vary from $5,000 or some other fixed amount to the entire line amount.
Those who don’t want to touch the line (open only for an emergency) should find a lender that doesn’t require a minimum draw, or only a small amount.
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