HELOC interest-only calculator

You aren’t a robot that uses a set amount of energy to perform the same tasks, day in and day out. You’re a human with constantly evolving needs and abilities. This principle applies to everything in your life, from your diet to your bank account — and it’s why flexible financing options like home equity lines of credit (HELOCs) are so popular. 

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Let’s take a look at what that flexibility could mean for you in terms of your monthly payment, which is one of the biggest reasons why people choose HELOCs in the first place. We’ll go over how to use our HELOC interest only calculator below. 

What is a HELOC?

A HELOC lets you borrow money as needed, with the option of making smaller payments now or postponing full repayment. HELOCs are similar to home equity loans in that they’re backed by the equity in your home as collateral, which also sets the amount you can borrow. Most lenders will allow you to borrow up to 80% of your home’s value, minus any debts tied to your home. This is also known as your home equity.  

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A key factor differentiating a HELOC from a home equity loan, however, is its payment structure. We’ll take a look at that next. 

How does HELOC repayment work?

Typically, a HELOC is repaid over two phases: an initial draw period where you’ll only be required to make interest-only payments, and a repayment period where you’ll make steady payments toward principal and interest until the debt is repaid. 

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The initial draw period on most HELOCs lasts five to 10 years, followed by a repayment period lasting 10 to 20 years. Your minimum payment will be a lot lower during the initial draw period, as you’ll see if you use our HELOC payment calculator, and will ramp up during the repayment period as you begin to repay any money you borrowed. 

Factors that impact HELOC repayment

A HELOC is the perfect flexible financing tool, but that also means that your payment amount and financing costs may change too. Let’s review some of the things impacting your HELOC repayment across its lifespan. 

• Draw amount: You only pay interest when you have an outstanding loan balance. If you only use it as a backup option and don’t ever draw anything, you won’t pay any interest at all. 
• Interest rate changes: Most HELOCs come with variable rates, with caps on how much it can increase or decrease. Changing rates translate into changing payments, too.
• Draw and repayment term lengths: Longer repayment periods mean smaller payments, similar to a long loan term. Longer draw periods mean more total interest paid.

How to use the HELOC interest only calculator

Anytime you plan on taking out debt, it’s important to run the numbers to see how much it’ll cost you so that you can ensure it’ll fit in your budget. We’ve created an interest only HELOC calculator here that can help you do just that. 

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In order to make things simple, this calculator assumes a 10-year draw period and a 20-year repayment period, and that your interest rate will hold steady. It also assumes that your loan balance will stay the same across the entire draw phase. However, you can adjust the interest rate to look at different cost scenarios. 

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Here’s what you’ll need to enter:

• Rate: You can see what impact a changing interest rate might have by entering a higher or lower rate. Start with a higher number to get an idea of your max potential payment.
• Draw amount: Enter your total credit line to see how much you’d pay if you maxed out your HELOC — but keep in mind you’ll pay $0 if you’re not actively borrowing.

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Here’s what the HELOC interest only calculator will show:

• Monthly interest payment: Your minimum payment during the interest-only draw phase. You can pay extra toward your balance during this time if you like, but it’s not required.
• New payment when the repayment period starts: Your minimum payment during the repayment phase. Make sure you’ll be able to pay this much when the time comes. 

When is a HELOC a good idea?

Low, interest-only payments are one of the biggest reasons why people are drawn to HELOCs, but that doesn’t necessarily mean they’re right for everyone. If you can answer “yes” to the following questions, a HELOC might be a good idea for you:

• Do you have good or excellent credit?
• Do you have at least 20% equity in your home?
• Are you looking for flexible financing, as opposed to a one-and-done loan?
• Can you accept the potential risk of losing your home if you default on the HELOC?
• Do you have enough room in your budget to make the maximum potential HELOC payment if needed?
• Have you considered all of the alternatives to getting a HELOC before deciding that it’s the right option for you?

Interest-only HELOC alternatives

HELOCs are popular for a reason, but they’re not the only choice you have if you need additional funds. Before you take on a HELOC, it’s wise to consider these other options too:

• Building savings: If you can afford to postpone your purchase, taking time to save more can help you reduce or eliminate your need for debt. 
• Home equity loan: Similar to a HELOC, but its lump-sum loan amount and fixed rate mean you’ll have the security of steady loan payments without the temptation to borrow more. 
• Cash-out refinance: Replacing your current mortgage with a larger one means you’ll get the difference back as cash, and can be a good option for people who can secure lower-rate loans.
• Home equity investment: You don’t have to make any monthly payments at all with an HEI because it’s not technically a debt, but rather a share of your home’s equity that you repay in the future. 

Final thoughts

A HELOC is a financial tool just like anything else. Whether it’s good or bad depends on how you wield it. If you’re careful to take on a HELOC that’s within your ability to repay, it can provide a lot of peace of mind and boost your quality of life. That’s what makes this interest only HELOC calculator so powerful: you can see exactly how much you’ll have to pay every month so that you're prepared, no matter what.