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HELOC Payments Explained

Veronica G
Updated

 

Payments                                                         
Years 1-5 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.

 

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

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

 

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

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