A Home Equity Line of Credit (HELOC) allows you to turn the equity in your home into liquid cash without touching the historically low interest rate on your primary mortgage. However, unlike a fixed mortgage, a HELOC has a variable interest rate and two distinct, often dangerous, phases: The Draw Period and the Repayment Period. Here is exactly how to calculate your true costs.
If you do not understand the structure of a HELOC, you will experience severe payment shock. A standard HELOC (often structured as a 10/20 plan) works like this:
Many homeowners get used to the tiny interest-only payments during the Draw Period. For example, a $50,000 balance at 8% interest only costs about $333 a month.
But on month 121, when the Repayment Period begins, you are suddenly forced to pay off the $50,000 principal plus the variable interest. Your payment will instantly jump to $418+ a month, often causing severe budget distress. Use our calculator above to explicitly compare your Draw Period payment vs. your Repayment Period payment.
Banks will not let you borrow 100% of your home's value. They require a safety buffer. Most lenders cap your total debt at a Combined Loan-to-Value (CLTV) ratio of 80% to 85%.
Here is the math: If your home is worth $500,000, and the bank allows an 80% CLTV, your maximum allowable debt against the house is $400,000. If you still owe $300,000 on your primary mortgage, your maximum HELOC limit will be $100,000.
Our calculator automatically handles this CLTV math for you. Simply input your home value, your primary mortgage balance, and the lender's CLTV limit, and we will reveal your exact available equity limit.
Unlike a fixed 30-year mortgage, a HELOC usually carries a variable interest rate tied to the Prime Rate. If the Federal Reserve raises interest rates, your HELOC payment increases automatically, even during the interest-only Draw Period.
In 2026, with inflation and Fed rates fluctuating, a variable rate is a serious risk. If you borrow $100,000 to renovate your kitchen and the Prime Rate jumps by 2%, your monthly interest-only payment will spike by $166 overnight.
If the variable rate of a HELOC terrifies you, you should consider a standard Home Equity Loan.
If you need $100,000 in cash, should you get a HELOC, or should you do a Cash-Out Refinance on your primary mortgage? If your current mortgage rate is below 4%, keep it and use the HELOC. If your current rate is 7%, a cash-out refinance might mathematically make more sense.
Go to Refinance CalculatorDuring the Draw Period (usually the first 10 years), you can withdraw money from your HELOC, and the bank only requires you to make interest-only payments. When the Draw Period ends, the Repayment Period begins (usually 20 years). You can no longer withdraw money, and your payment drastically jumps because you must now pay back the principal plus interest.
Calculate payments on a Home Equity Line of Credit. See interest-only draw period payments and full P&I repayment costs.