Calculate HELOC payments for draw period (interest-only) vs repayment (P+I). See payment shock, total interest, and payoff strategies.
A Home Equity Line of Credit (HELOC) charges interest on a variable rate tied to the Prime Rate, which sits at 7.25% as of May 2026. Your payment depends on two factors: which phase of the HELOC you're in (draw period vs. repayment period) and which payment structure your lender offers (interest-only vs. principal + interest).
Here's the core math you need: on a $50,000 HELOC at 8.5% APR, interest-only payments during the draw period run roughly $354/month. The same balance under principal + interest amortization over 20 years jumps to $434/month. That $80 monthly difference looks small until you realize that interest-only payments leave the full $50,000 principal owed when the draw period ends — typically after 10 years.
This article breaks down both payment structures with real numbers, walks through the payment shock that catches most borrowers off guard, and shows you exactly when interest-only makes sense versus when principal + interest will save you tens of thousands of dollars.
Interest-Only Payment Formula:
Monthly Payment = (Current Balance × Annual Rate) / 12
Example: $75,000 balance × 8.5% = $6,375 annual interest ÷ 12 = $531.25/month
Principal + Interest (Amortized) Formula:
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where P = principal, r = monthly rate (APR/12), n = number of payments.
Example: $75,000 amortized over 20 years at 8.5%:
Most HELOCs default to interest-only payments during the 10-year draw period. Your minimum payment fluctuates with two variables: your outstanding balance and the Prime Rate.
2026 Sample Scenarios (Interest-Only):
| HELOC Balance | Rate (Prime + 1.25%) | Monthly Payment |
|---|---|---|
| $25,000 | 8.5% | $177.08 |
| $50,000 | 8.5% | $354.17 |
| $75,000 | 8.5% | $531.25 |
| $100,000 | 8.5% | $708.33 |
| $150,000 | 8.5% | $1,062.50 |
The Advantages:
The Hidden Trap:
If you borrow $100,000 and make interest-only payments for the full 10-year draw period, you'll have paid roughly $85,000 in interest while still owing the original $100,000. Then your repayment period kicks in — typically a 20-year fully amortized schedule. Your payment jumps from $708/month to about $867/month overnight. That's the classic "HELOC payment shock."
Some lenders allow (or require) amortized payments during the draw period. This structure adds a principal component that reduces your balance every month.
Sample $100,000 HELOC at 8.5% over 20 years:
Compare that to the interest-only path: if you make interest-only payments for 10 years on $100,000 ($85,000 total) then amortize the remaining $100,000 over 20 years ($867/month × 240 = $208,277), your total interest balloons to $193,277 — nearly double the cost of consistent amortization.
Here's the scenario that wrecks household budgets in year 11 of a HELOC: you've been comfortable paying $531/month on a $75,000 balance for a decade. Then your servicer mails a notice that your new repayment-period payment is $651/month — a 22.6% increase.
The shock is worse when rates rise. If Prime climbs from 7.25% to 9.5% during your draw period:
This is why most financial planners recommend treating the interest-only minimum as a floor, not a ceiling. Pay principal voluntarily during the draw period to soften the transition.
A Home Equity Loan is a fixed-rate, fully amortized lump sum. A HELOC is a variable-rate revolving credit line. The right choice depends on use case:
Choose HELOC if:
Choose Home Equity Loan if:
For a deeper comparison of when to tap home equity versus refinancing, see our HELOC vs Cash-Out Refinance Calculator.
Sarah and Tom own a $620,000 home with $380,000 owed on their primary mortgage. They have $240,000 in equity. They open a $100,000 HELOC at Prime + 1.25% (8.5%) and draw $80,000 for a full kitchen remodel.
Path A: Interest-Only for 10 Years
Path B: Amortize From Day One Over 20 Years
Path B saves Sarah and Tom $68,000 in interest by adding $127/month to their initial payment. That's the cost of optionality: choosing interest-only "flexibility" you don't end up using costs you a downpayment-sized chunk of money.
Before opening a HELOC, stress-test your payment under three scenarios:
Your household budget should comfortably handle scenario 3. If repayment-phase payments would exceed 28% of gross monthly income combined with your primary mortgage, the HELOC limit is too high.
Under current tax law, HELOC interest is deductible only if proceeds are used to "buy, build, or substantially improve" the home securing the loan. Using HELOC funds for credit card payoff, college tuition, or a car purchase makes the interest non-deductible.
The combined mortgage debt cap for deducting interest is $750,000 ($375,000 married filing separately). For tracking what counts and what doesn't, our Mortgage Interest Deduction Calculator walks through the documentation IRS auditors look for.
Two triggers should prompt a refinance review:
1. Repayment phase approaches and rates dropped. If your HELOC is moving into amortization and 30-year fixed mortgage rates are below your HELOC rate, a cash-out refinance into your primary mortgage often consolidates both at a lower blended cost.
2. You have significant equity and need new draws. Opening a new HELOC at better margin (Prime + 0.5% vs. Prime + 1.5%) can save thousands. Check our Mortgage Refinance Break-Even Calculator for the math on whether refi closing costs make sense.
For comparing total mortgage payoff strategies including HELOC paydown, see our Mortgage Payoff Calculator.
Most HELOCs have a 10-year draw period followed by a 20-year repayment period, for a 30-year total term. Some lenders offer 5-year or 15-year draw periods. During the draw period you can borrow, repay, and re-borrow. Once the draw period ends, the line closes and you enter fully amortized repayment on the outstanding balance.
Yes. Every HELOC allows voluntary principal payments during the draw period, and most lenders make it free. Doing so reduces your future interest cost and softens the payment shock when repayment begins. Some borrowers set their auto-pay to 1.5x or 2x the minimum interest-only payment specifically to amortize organically.
Your HELOC rate is typically expressed as Prime + a margin (e.g., Prime + 1.25%). The Wall Street Journal Prime Rate adjusts within hours of any Federal Reserve rate decision. If Prime moves from 7.25% to 7.75%, your HELOC rate also moves up 0.5 percentage points, and your interest-only payment on a $100,000 balance increases by about $42/month immediately.
Yes, but only when the proceeds are used to buy, build, or substantially improve the home securing the loan. The deduction is subject to the $750,000 combined mortgage debt cap ($375,000 married filing separately). HELOC funds used for credit card payoff, vacations, education, or vehicle purchases are not deductible. Keep contractor invoices and bank records showing where draws went.
You have three realistic options: (1) refinance the HELOC balance into your primary mortgage via a cash-out refi, (2) sell the home and pay off the line at closing, or (3) request a hardship modification from your lender — some will extend the repayment term or temporarily reduce the rate. Defaulting on a HELOC can trigger foreclosure since the line is secured by your home, so address the cash flow gap 12+ months before draw-period ends.
By Ziv Shay — Last updated May 16, 2026
This content is for educational purposes only and does not constitute financial advice. Consult a qualified financial advisor before opening a HELOC or making decisions about your home equity.
The content on this page is for informational purposes only and should not be considered financial advice. Rates, terms, and offers are subject to change. We may earn a commission through affiliate links at no extra cost to you. See our full disclaimer.
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