- HELOC
- A home equity line of credit: a revolving credit line secured by your home, which you can draw on as needed up to a set limit. It has two stages, a draw period with interest-only payments and a repayment period with principal and interest. This calculator estimates the payment in each stage.
- Draw period
- The first stage of a HELOC, often 10 years, during which you can borrow, repay and borrow again. Many HELOCs require only interest on the amount drawn during this stage, so the balance does not fall unless you pay extra. The calculator treats the drawn balance as constant through the period.
- Repayment period
- The stage after the draw period ends, when you can no longer borrow and the balance is repaid in principal and interest payments over a set number of years. The payment usually rises sharply at this point. The calculator amortizes the drawn balance over the repayment years at the current rate.
- Interest-only payment
- The draw-period payment: the amount drawn times the annual rate, divided by 12. For example, $60,000 at 8.5% is $425 a month. It covers interest only, so it leaves the balance unchanged, and it moves up or down with the rate and with how much you draw.
- Variable rate
- An interest rate that changes over time, usually set as an index such as the prime rate plus a fixed margin. Most HELOCs have variable rates, so both the draw-period and repayment-period payments can rise or fall. This calculator uses the rate you enter for the whole life of the line.
- Credit limit
- The maximum the lender allows you to borrow on the line. Lenders usually set it from your home’s value, your existing mortgage balance and a maximum combined loan-to-value, along with your credit and income. Interest is charged only on the amount drawn, not on the full limit.
- Amount drawn
- The portion of the credit line you have actually borrowed. It is the balance interest is charged on and the amount repaid in the repayment period. The calculator caps it at the credit limit; the unused remainder is shown as available credit.
- Home equity
- The market value of your home minus what you owe on it. A HELOC lets you borrow against part of that equity, with the home as collateral. Because the loan is secured by the house, falling behind on payments can put the home at risk, as with a first mortgage.
- Total interest
- The interest paid over the life of the HELOC: draw-period interest plus repayment-period interest. The calculator shows each part and the total, assuming the rate stays constant and the balance drawn does not change during the draw period. Rate changes or extra draws would change the total.
