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Home Equity

How Are HELOC Payments Calculated?

If you borrow a home equity line of credit (HELOC), you might not need to pay back the total amount right away. Like credit cards, HELOCs offer a revolving line of credit to access during your draw period, which often spans 10 years. 

Many lenders let you make monthly interest-only payments during this time. After your draw period ends, you can expect to start making full principal and interest payments on the amount you borrowed over a repayment term of up to 20 years. 

HELOCs often come with variable rates, so your monthly payment could change if your rate increases or decreases. In an environment with increasing interest rates, this is crucial to remember when determining what you can afford. 

In this guide:

What factors affect how HELOC payments are calculated?

The monthly payment on your HELOC depends on several factors, including the following three. 

The amount you borrow 

The monthly payment during your draw period is based on the amount you borrow from your credit line. The more you borrow, the more interest will accrue and the higher your payments will be. 

Whether you’re in your draw period or repayment period

Most lenders don’t require full payments until your draw period ends. During this time, you may pay the interest that accrues on the amount you borrowed plus a small portion of your principal balance. 

When your draw period ends, you’ll make full principal and interest payments monthly over your selected term, which may span 20 years. Specific lenders may require you to make a balloon payment—where the entire balance is due immediately—when your draw period ends, but this structure is less common. 

Your interest rate

Many HELOCs come with a variable interest rate that can fluctuate with market conditions. If your rate increases, so will your monthly HELOC payments. 

Some lenders offer the option to lock in a fixed rate on part or all of your HELOC. Plus, your lender might cap how much your rate can increase. 

How do lenders calculate monthly HELOC payments?

Every lender sets its HELOC repayment rules, but most consider the following to calculate payments:

  • The amount you’ve withdrawn
  • Whether you’re in the draw or repayment period
  • Your interest rate 

For instance, say you withdraw $10,000 from your HELOC at an 8% rate. If your lender only requires interest payments during your 10-year draw period, expect to make monthly payments of $66.67. When your repayment period begins, your total payments will be $83.64, assuming a 20-year repayment term. 

However, your payments could change if your rate fluctuates. If it went up to 9%, your payments during your draw period would increase to $75. During your 20-year repayment period, your monthly HELOC payments might go up to $89.97. 

Note: You can opt to pay off your HELOC sooner. Paying back the amount you borrowed means it becomes available to take out again if your draw period is still active. Remember that lenders may charge a prepayment penalty for paying off your HELOC ahead of schedule. 

FAQ

Why is my HELOC payment $0?

If you haven’t made any withdrawals from your HELOC, your monthly payment will be $0. You haven’t borrowed from your line of credit, so you don’t have to pay anything back from month to month.

If you’ve borrowed from your HELOC, there might have been a delay in processing the amount you owe. Contact your lender if you think there’s been a mistake, and keep an eye out for next month’s bill to see whether you owe interest on your withdrawal. 

What if my HELOC payment due looks wrong?

If your HELOC payment looks wrong, contact your lender to discuss the issue. Calling customer service is often best, but some lenders may assist through web chat, email, or a secure message via your online account. 

What is the minimum monthly payment on a HELOC?

Some lenders require you to make a minimum monthly payment on your HELOC. The amounts will vary by lender. For example, your lender might require monthly payments of the greater of 1% of your outstanding balance or $50. 

During your repayment period, your minimum HELOC monthly payment is often the principal and interest amount necessary to pay off your HELOC in full by the end of your term, similar to a mortgage. 

What if I can’t afford my HELOC payment?

If you can’t afford your HELOC payment, contact your lender to discuss your options. It may be able to adjust your repayment term to give you a more affordable monthly payment. 

You can also explore options for refinancing your HELOC into a new mortgage or home equity loan. However, you’ll still need to make monthly payments on your new loan.