How a HELOC works
A home equity line of credit (HELOC) lets you borrow against your home's equity (its value minus what you still owe on the mortgage) as you need it, up to a limit. It has two stages:
- The draw period. You can borrow, repay and borrow again. Some plans require payments that include some principal; others let you pay only the interest.
- The repayment period. You can't draw any more, and the balance is repaid, often over 10 or 15 years. Some plans instead make the whole balance due at once, as a balloon payment.
The rate is usually variable, following an index plus a margin, so payments can change even if you borrow nothing more. The CFPB's guide to HELOCs covers the terms to ask about, including rate caps, fees and minimum draws.
A home equity loan is the simpler cousin: one lump sum, usually at a fixed rate, repaid in equal monthly payments over a set term. Choose it at the top of the calculator to compare the two.
How much you can borrow
Lenders cap what everything owed on the home can add up to, as a share of its appraised value: the combined loan-to-value (CLTV). What's left under the cap, after the mortgage, is the most you can borrow. On a $500,000 home with $250,000 owed, a limit of 85% allows $425,000 in all, so up to $175,000. Each lender sets its own limit, so ask for it when you shop.
An example: the payment jump
Say you draw $50,000 at 8.5% (an example rate), with a 10-year draw period and 15 years to repay:
- Interest-only draw: $354.17 a month for 10 years. Then, with nothing yet repaid, the full $50,000 is spread over 15 years: $492.37 a month, $138.20 more. Total interest is about $81,100.
- Principal and interest from the start: $402.61 a month for all 25 years, with no jump, and about $70,800 of interest.
- A 15-year home equity loan at the same rate: $492.37 a month, finished in 15 years, with about $38,600 of interest.
A shorter repayment period makes the jump bigger: with 10 years to repay instead of 15, the payment goes from $354.17 to $619.93.
When the rate rises
Because HELOC rates usually float, the calculator shows the payments at 1, 2 and 3 points higher. In the example, a rate 3 points higher (11.5%) raises the interest-only payment from $354.17 to $479.17, and the repayment-period payment from $492.37 to $584.09. Your plan's rate cap, if it has one, limits how high it can go. The figures here assume the higher rate from the start, a simple way to see the risk.
Things to check
- Your home is the collateral. If you can't keep up the payments, you could lose it.
- Plan for the end of the draw period. An interest-only payment is the smallest it will ever be. Budget for the repayment-period payment, at a higher rate too.
- Balloon plans. If the balance is due all at once when the draw period ends, you'll need to pay it or refinance it then. This calculator models plans that repay over a period.
- Fees and terms. Ask about closing costs, annual fees, minimum draws, and any early-closure fee. A HELOC is generally due in full if you sell the home.
- Borrowing gradually. You may not draw the whole amount on day one. The calculator assumes you do, which shows the most interest that amount could cost.
Common questions
Is a HELOC or a home equity loan better?
A HELOC suits costs that come in stages, like a renovation, since you pay interest only on what you've drawn. A home equity loan suits a single known cost, and its fixed rate and payment don't change. Compare both here with your quotes.
Can I pay more than the minimum during the draw period?
Check your plan's terms. Where it's allowed, paying principal during the draw period shrinks the jump later. Open the loan in the mortgage calculator with the link under the results to try extra payments on any month.
What about a cash-out refinance instead?
A cash-out refinance replaces your whole mortgage with a bigger one. It can make sense if the new rate beats your current one, but it resets the whole loan. The refinance calculator compares that choice.
Does the HELOC change my first mortgage?
No. It's a separate loan secured by your home, with its own payment. Both payments count toward your debts when a lender checks what you can afford.