HELOC Calculator

The payment shock is the whole story

During the draw period — typically ten years — a HELOC usually requires interest only. The payment looks small and nothing reduces the balance. When the repayment period begins, the full balance must amortize over the remaining term, so the payment jumps to include principal. A jump of two to three times is normal, and it arrives on a fixed date you agreed to years earlier. The two figures above are the same debt at two stages.

The rate is variable, and that matters more here

Most HELOCs carry a variable rate tied to the prime rate. On a fixed mortgage a rate rise changes nothing; on a HELOC it raises your payment immediately, during a period when you may already be facing the repayment jump. Stress-test the number above at two or three points higher before deciding how much to draw.

How much you can borrow

Lenders cap the combined loan-to-value — your existing mortgage plus the new line — usually at 80% to 85% of the home's value. The maximum shown above is that cap minus what you already owe. Borrowing against equity converts an asset into debt secured by your home, which is why the consequence of default is different from an unsecured loan.

HELOC versus home equity loan versus cash-out refinance

Three ways to tap equity, with different shapes. A HELOC is a revolving line with a variable rate — flexible, cheapest to open, riskiest on rate moves. A home equity loan is a fixed-rate lump sum with level payments from day one and no payment shock. A cash-out refinance replaces your whole mortgage, which is attractive only if current rates are at or below your existing rate — otherwise you repriced your entire balance to get at a slice of equity. This page models the HELOC path; if the payment shock above looks unmanageable, a fixed home equity loan is the natural alternative to price next.

Frequently Asked Questions