HELOC Payments Explained

Payments

Years 1-5

During the first 5 years, the HELOC payment is interest-only. This means the monthly payment covers only the accrued interest, not the principal balance. 

Calculation: 

(Interest rate % * Loan amount) / 12 = Monthly Payment

Example: 

If the interest rate is 7% and the line amount is $400,000 

(0.07 * 400,000) / 12 = $2,333.33 is the monthly payment

Years 6+

After the initial 5-year period, the HELOC transitions into the repayment phase. The monthly payment now includes both interest and principal. 

Note: Some states vary. For example, Tennessee is a 5 year draw, 10 year repayment. 
 

Principal and Variable Interest Payment Calculations

Principal Payment:

• The principal payment during the repayment phase is calculated as the outstanding principal balance divided by 300 months (25 years).

Variable Interest Payment:

• On top of the fixed principal payment, the monthly HELOC payment also includes a variable interest component that fluctuates with market rates.
  • Prime Rate (Variable) + Margin (Fixed) = Total interest rate
• Calculation: (Total Interest rate % * Outstanding Principal Balance) / 12 = Variable Interest Payment

Total HELOC Payment

The Total HELOC payment is calculated by adding the principal payment and the variable interest payment.

•  Principal Payment + Variable Interest Payment = Total HELOC Payment

Example:

• Remaining balance is $350,000.  Prime Rate is 8.5% and the Margin is 2.99.
  • Principal Payment: $350,000 / 300 months = $1,166.67
• Variable Interest Payment:  $350,000 * 11.49% (8.5 + 2.99) = $40,215.   $40,215/12 = $3,351.25
• Total HELOC Payment: $1,166.67 + $3,351.25 = $4,517.92