HELOC Calculator

Created by Oghenekaro Elem and Tibor Pal, PhD candidate
Reviewed by Wojciech Sas, PhD candidate and Jack Bowater
Last updated: Mar 18, 2022

The HELOC calculator will help you predict interest rate adjustments during a HELOC loan term and determine the average monthly payment required to pay off the loan. You can also use this tool as a HELOC payment calculator to find the amortization schedule and chart of balances as the outstanding loan amount changes.

HELOCs allow you to access and repay funds flexibly without worrying about penalties associated with mortgage prepayments. By using a HELOC on a government-backed home equity, loan like VA loan, FHA loan, or the USDA loan, you can even access up to 100% of your home value to sort out expenses. But, you have to understand how HELOC loans work to use them strategically in your mortgage.

This article will demystify the home line of equity credit so that you can apply this HELOC payment calculator in planning your finances. If you read on, you will find answers to the following questions:

  • How does a HELOC work?
  • How to calculate HELOC payment?
  • How to calculate HELOC loan amount?

What is HELOC? What is a HELOC loan?

HELOC means Home Equity Line of Credit. A HELOC loan is a type of loan in which a lender provides you access to funds you can use at any time, up to a pre-approved maximum limit based on the equity on your home mortgage. You only pay interest on the amount you withdraw, and you can make flexible principal plus interest repayments on a loan. It is different from most home equity loans, such as home loans and cash refinances, because the lender does not offer you the loan in a lump sum, but allows you to use the amount you need as you please.

How does HELOC work?

A HELOC works just like a credit card; you pay for what you use from the extended Home Equity Line of Credit whenever you want until the agreed repayment due date. Unlike the credit card, the collateral on a HELOC loan is your home equity, so it is wise to make timely payments and avoid foreclosure. But there's more...

When a lender extends you a Home Equity LOC, it usually comes with two parts for the repayments:

  • A draw period with variable-rate payments; and
  • A repayment period with usually fixed-rate amortized payments.

Draw period

During the draw period, which is set between 10 – 15 years, you can make interest-only payments depending on how much you withdraw.

If you withdraw less than the pre-approved maximum amount, you can repay what you use to restore your line of credit balance, withdraw, repay again, withdraw again... you get the drift. For instance, if the maximum limit agreed with your lender is $50,000, and you withdrew $40,000, you will be entitled to only withdraw $10,000 more. If you repay the $40,000 during the draw period, you've essentially restored your HELOC credit limit back to the original $50,000.

Repayment period

The repayment period, usually set between 10 - 20 years, is when you are expected to repay both the principal and interest. So, the amount you pay monthly during the repayment is mostly like an Equated Monthly Installment of the Home Equity LOC outstanding balance. In some way, this makes the HELOC operate like a partially amortized loan because some lenders may even expect a balloon payment, depending on your signed agreement. You should expect the amount to be significantly higher than what you pay during the draw period if you were not making repayments towards your principal. To avoid any unpleasant surprises, it's advisable to make extra monthly payments on your principal during the draw period.

How to calculate HELOC loan amount?

The HELOC loan amount (or the pre-approved maximum limit) you qualify for depends on the equity you own in your home or your mortgage loan balance. Usually, HELOC providers will offer up to 80% of the home value. If you have a perfect credit score, preferably a FICO score of above 720, you may be able to access more.

A simple way to calculate the HELOC maximum limit you may be eligible for is to use the formula:

HELOC loan amount = (Home value × 80%) – Mortgage loan balance

Example:

If you owe $50,000 as your mortgage balance and your home is worth $500,000. The amount you can access in a HELOC is:

HELOC loan amount = ($500,000 × 80%) - $50,000 = $350,000.

That means your LTV ratio, which is $50,000 / $500,000 = 0.1 = 10%, will enable you access up to 70% of the home value since you will not be able to access the full 80% offered by most HELOC providers. With no debt on your mortgage, you can access the full 80% of your home value from a HELOC provider.

However, when you approach a HELOC provider, you have to request how much you want. Not how much is available, right? 🤨

Therefore, assuming you requested a credit line of $100,000, the HELOC provider will use a combined-loan-to-value ratio (CLTV) to determine if you qualify for the HELOC and set rates accordingly.

To calculate your CLTV, your requested credit line will be added to your mortgage loan balance and divided by your home value after appraisal.

CLTV = ($100,000 + $50,000) / $500,000 = 0.3 = 30%

As long as your CLTV is above the accepted 80% threshold and you meet other provider-specific requirements, you’ll get your HELOC. 🤝

If you have a government-backed mortgage, like a FHA loan, VA loan, or USDA loan, you may be able to access up to a 100% LTV ratio with an excellent debt-to-income (DTI) ratio. You can use the DTI calculator to find out what constitutes an excellent DTI, but the benchmark varies between lenders.

How to calculate HELOC payment?

Since the HELOC has two parts, the HELOC payment amount varies. During the draw period, most lenders use variable interest rates and you can choose to pay only the accruing interest on credit drawn, which means you have to be mindful about what you are paying monthly to avoid any financial pitfalls associated with home affordability.

There are two formulas to calculate HELOC payments:

For the draw period's interest-only payments:

Monthly interest-only payment = CHB × RATE

For the repayment period's payments:

Monthly principal + interest payment = (CHB × RATE) × ( (1 + RATE)(12 × RP)) / ( (1 + RATE)(12 × RP) - 1 ),

where:

  • CHB - Current HELOC balance;
  • RP - Repayment period (in years); and
  • RATE - Monthly interest rate = (Annual interest rate / 100) / 12.

How to use the HELOC rates calculator?

With the Home Equity Line of Credit Calculator, you don't have to worry about the formulas. All you have to do to determine how much you will have to pay monthly using a CHB is to follow these simple steps:

  1. Provide the amount you need in the field Current HELOC balance.
  2. Input how long the Draw period will last.
  3. Input how long the Repayment period will last. The calculator already set a default value for these, but you can change them as you please.
  4. Input the Interest rate on the HELOC loan. The interest rate is usually variable during the draw period, so be mindful of it if it looks small, it may be a honeymoon rate that increases over time - but don't worry, our HELOC calculator can help you make adjustments to account for any change.
  5. Fill in the agreed or expected Up-front fee with the loan provider.
  6. Provide the Annual fee for the loan. The annual fee is what the lender charges for keeping your line of credit active.

Now, take a breath 😁. You can take a look at a complete breakdown of the loan in the results table showing your monthly payment down to the total payments required to clear off your loan. All the fields already have default figures equal to commonly expected HELOC loan parameters. Therefore, unless you want to go into specifics, you can quickly make changes to only the required fields to get your monthly payment estimate.

However, to prepare you for any interest rate adjustments and to avoid surprises, you can also change different interest parameters to see how the loan cost changes with variable rates.

Under the calculator's interest rate adjustment section, you can use the trends adjustment that predicts how the interest rate increases over time up to an expected rate at the end of the repayment period. Or use a manual adjustment and provide your expected adjustment from the first interest rate adjustment to the predicted interest rate cap. Again, this is only for specifics to predict how your monthly payment changes in a volatile mortgage market.

Additionally, the calculator offers a chart of balances and an amortization schedule for you to track the loan payment at every point throughout the loan term! details... details... 🤓

FAQ

Is HELOC interest tax deductible?

Yes. You can deduct the interest you pay on your HELOC loan from your taxes if you can prove you used the HELOC for home improvements. So keep your receipts!

How do I get a HELOC?

You can get a HELOC in the following steps:

  1. Own at least 15% - 80% on your home equity.

  2. Find the best HELOC rates using the Home Equity Line of Credit Calculator to compare options.

  3. Provide your employment and income information to show your preferred HELOC provider that you have at least a 45% debt-to-income ratio.

  4. Look out for your lender's prime rate to ascertain how much you will be paying precisely before filling out the documentation required.

  5. Finalize the agreement and begin accessing your HELOC.

How is HELOC interest calculated?

You can calculate your HELOC interest using the following steps:

  1. Determine how much you've used from the HELOC, i.e., your current HELOC balance.

  2. Multiply the current HELOC balance by the annual interest rate charged on loan.

  3. Divide the value by 12 to determine how much you will pay monthly.

HELOC Monthly interest-only payment formula = CHB × RATE,

where:

  • CHB - Current HELOC balance; and
  • RATE (monthly interest rate) = (annual interest rate / 100) / 12.

How is interest calculated on HELOC vs. mortgage?

HELOC interest is calculated in two parts because borrowers can choose to make interest-only payments during the draw period of the HELOC, while a regular mortgage's interest is calculated once because borrowers pay the interest along with part of the loan principal from the onset. Accordingly, the interest for a HELOC during the repayment period is calculated the same way the regular mortgage's interest is determined.

How are HELOC interest rates calculated?

The HELOC interest rates are calculated based on how much you used from the line of credit extended to you. If the lender extended you $100,000 at a 10% interest rate, you used only $50,000. You will pay interest on only the amount you used, which is $50,000 × 10% = $5,000 as HELOC interest.

Oghenekaro Elem and Tibor Pal, PhD candidate
Current HELOC balance
$
Draw period
yrs
mos
Repayment term
yrs
Interest rate
%
Up-front fee as a percentage
%
Up-front fee
$
Annual fee
$
Interest rate adjustments
Adjustments by...
manual setup
Expected adjustment
%
First adjustment after...
yrs
Periods between adjustments
yrs
Interest rate cap
%
Results
Draw periodRepayment periodTotal
Monthly payment$225.00$346.64 - $358.14$342.18*
Annual Percentage Rate (APR)5.04%5.981%6.081%
Term10 months20 years20 years and 10 months
Paid interest$2,083.33$33,461.38$35,544.71
Additional costs$166.67$4,000.00$4,666.67
Total payments$2,250.00$87,461.38$90,211.38
*Average monthly payment.
Display...
chart of balances
Schedule from...
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