How it works
A home equity line of credit is a revolving second lien with a split personality: during the draw period — often ten years — required payments cover interest only, and the balance sits frozen however you leave it; when repayment begins, the entire balance amortizes across the remaining term, and the payment snaps upward accordingly. The trap lives between those phases. Interest-only comfort trains budgets around a number that was never retiring debt: $35,000 drawn at 8.75% demands about $255 monthly while repaying nothing, quietly burning roughly $9,200 of interest across a three-year remaining draw. Then amortization arrives and the same debt wants nearly $450 a month. This planner models both phases continuously: today's interest-only obligation, the post-draw payment under your chosen repayment term with any extra principal included, interest consumed in each phase, and months-to-zero once repayment starts. Because HELOC rates float with prime, every figure here is a floor scenario — a two-point rate rise lifts the interest-only line before amortization ever begins, which is why the planner treats the extra-principal field as the primary defense. Paying principal during the draw phase does what interest-only structurally forbids: it converts a floating liability into a shrinking one on your schedule rather than the bank's.
Formula
Draw payment = balance × rate/12 | Repayment payment = payment(balance, rate, repayment months) | Total interest = draw-phase + repayment-phase
Tips
- Pay principal during the draw period — interest-only is optional, ignorance isn't.
- Calendar the repayment start date; the payment jump surprises unprepared budgets.
- Stress-test at rate + 2 points before treating any figure as stable.
- Refinancing the HELOC into a fixed loan tames float risk at renewal.
- Never fund depreciating toys with a lien against your house.
Frequently asked questions
- What happens when a HELOC draw period ends?
- Interest-only ends and the full balance amortizes over the repayment term — typically ten to twenty years. A $35,000 balance at 8.75% jumps from about $255 monthly to roughly $448, a 76% increase arriving on a date most borrowers never circled. Unpaid balances may alternatively convert to a balloon in some contracts.
- Can I pay principal during a HELOC draw period?
- Yes, anytime — the interest-only minimum is a floor, not a structure. Every principal dollar immediately stops accruing at the floating rate: $100 extra monthly against a $35,000 balance removes roughly $4,700 of eventual interest and shortens repayment materially. The bank profits from borrowers who mistake the minimum for the plan.
- How is a HELOC payment calculated during the draw period?
- Simple interest on the outstanding balance: balance times rate divided by twelve. At $35,000 and 8.75%, that is about $255 monthly — every dollar of it interest, none touching principal. Because the rate floats with prime, the payment floats too, which distinguishes HELOCs from fixed second mortgages entirely.
- How much interest does a HELOC cost overall?
- Across both phases on the defaults — three draw-years interest-only plus amortization with $100 extra — roughly $21,000–$23,000 total on $35,000 borrowed, with nearly $9,200 of it burned before principal repayment even begins. Extra principal during the draw phase is the single biggest lever for shrinking that total.
- Should I refinance my HELOC into a fixed loan?
- When rate stability matters more than flexibility, yes. Fixed home-equity loans or cash-out refinancing convert the floating exposure into level payments — valuable precisely when rates have climbed and further rises threaten the budget. The trade-off is surrendering reuse of the line, so decide based on whether the borrowing season is truly finished.