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Step 1
Determine the principal. This is the total amount that you borrow. As time goes on the principal will become the principal balance of what is left of what you owe.
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Step 2
Determine the interest rate. The interest rate at the beginning will be your starting interest rate. However, since we are talking about a variable-rate HEL, this will change periodically. You must check each month to make sure that the interest rate has not changed.
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Step 3
Calculate the interest. If the current rate is quoted at a 12 percent annual variable interest rate, then the applicable interest for the month in question is 12/12 or 1 percent. Therefore if you borrowed $25,000 for 15 years, your monthly interest payment for the first month will be $25,000 x 1 percent, or $250.
In the second month, your principal balance would have been reduced by whatever you paid for the current month. Therefore you will use the new balance and the new interest rate, if it changes for the above calculation. -
Step 4
Calculate your monthly payment. Use a financial calculator to compute your monthly payment. For example in the above scenario, your monthly payment for the first month will be $300.04. Your monthly payment will remain the same for as long as the rate does not change.
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Step 5
Use an online calculator. A good way to calculate your monthly payment for your variable-rate HELOC is to use an online automatic calculator or download a spreadsheet version onto your computer for use anytime. See a links in Resources below for these.
