See your line, your payment, and the shock ahead.
Find out how large a home equity line of credit you qualify for, what the interest-only payment costs during the draw period, and how much it jumps when full principal-plus-interest payments begin.
Your home and equity
You only pay interest on what you draw during the draw period.
What this line means for you
The payment shock at the end of the draw period
Monthly payment over the life of the HELOC
How your home value is split
Mortgage, drawn HELOC, and remaining equity
HELOC scorecard
Year-by-year balance and payment
Interest-only during the draw period keeps the balance flat, then principal-plus-interest payments pay it down over the repayment period.
| Year | Phase | Monthly payment | Interest paid | Principal paid | Balance |
|---|
HELOCs, explained
How a HELOC Works
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home, functioning similarly to a credit card but with much lower interest rates. Your lender sets a credit limit based on your home equity, and you can borrow up to that limit as needed during the draw period. You only pay interest on the amount you actually borrow, not the full credit line, making HELOCs a flexible financing option for homeowners.
HELOC Draw Period vs Repayment Period
HELOCs have two distinct phases. The draw period, typically lasting 5-10 years, allows you to borrow funds and usually requires only interest-only payments. Once the draw period ends, the repayment period begins, lasting 10-20 years, during which you can no longer borrow and must make full principal-plus-interest payments. This transition can significantly increase your monthly payment, so it is important to plan ahead for the repayment phase.
Understanding Variable Rates on HELOCs
Most HELOCs carry variable interest rates tied to the prime rate, which means your rate and monthly payment can fluctuate as the Federal Reserve adjusts benchmark rates. When rates rise, your HELOC payments increase accordingly, and vice versa. Some lenders offer fixed-rate conversion options that let you lock in a rate on a portion of your balance, providing more payment predictability while retaining the flexibility of a revolving credit line.
Best Uses for a HELOC
HELOCs are well suited for expenses that occur over time, such as phased home renovations, ongoing education costs, or as an emergency financial safety net. Because you only pay interest on what you draw, a HELOC can be more cost-effective than a lump-sum home equity loan when you are unsure of the total amount needed. Home improvement projects that increase your property value can be particularly strategic uses, as they build equity while utilizing it.
Common questions
How is my HELOC credit limit determined?
Most lenders use 80-85% of your home's appraised value minus your outstanding mortgage balance. On a $400,000 home with $250,000 owed, an 85% LTV gives you a maximum credit line of $90,000.
What is the draw period on a HELOC?
The draw period typically lasts 5-10 years, during which you can borrow as needed and usually make interest-only payments. After the draw period ends, you enter a 10-20 year repayment period with principal and interest payments.
Are HELOC interest rates fixed or variable?
Most HELOCs have variable interest rates tied to the prime rate. This means your rate and payment can increase or decrease as market rates change. Some lenders offer a fixed-rate conversion option for portions of your balance.
Can I lose my home with a HELOC?
Yes. A HELOC is secured by your home, meaning the lender can foreclose if you default on payments. It is important to borrow responsibly and ensure you can make payments even if rates rise significantly.
Estimates for planning only. HELOC rates are variable and can rise or fall over time, changing your payment. Actual credit limits, fees, draw and repayment terms depend on your lender, credit profile, and an appraisal. Verify every figure before you borrow.