A HELOC (home equity line of credit) is revolving debt secured by your house. Most US HELOCs split life into a draw period—often 10 years—when you pay interest only on what you borrow, and a repayment period when you must amortize principal plus interest. This guide pairs with our free HELOC payment calculator so you can model both phases with your rate and balance.
Payment cliff The biggest surprise is not the draw payment—it is the jump when the draw period ends and principal repayment begins. Model both numbers before you borrow.
How HELOC interest is calculated
Lenders usually quote Prime (or another index) plus a margin. Your effective annual rate = index + margin. Monthly interest-only payment during the draw period is approximately balance × (annual rate ÷ 12). Example: $75,000 drawn at 9.5% → about $594/month interest-only.
Draw period vs repayment period
Draw period: borrow, repay, re-borrow up to the line limit; payments often interest-only.
Repayment period: no new draws; payment includes principal—monthly cost can double or more.
Combined loan-to-value (CLTV) caps near 80–85% of home value are common.
HELOC vs cash-out refinance vs home equity loan
A HELOC fits ongoing projects (renovations, tuition bridges) when you want flexibility. A home equity loan is a fixed lump sum with a fixed rate. A cash-out refinance replaces your first mortgage—worth comparing if your primary rate is already low and you only need one large sum.
When a HELOC is a bad idea
You are stretching equity to fund consumption with no plan to repay principal.
You might sell the home before the repayment phase—short horizon + closing alternatives may win.
Variable rates rising fast and you cannot absorb a higher payment after the draw period.