How to Calculate a HELOC Interest-Only Payment

Borrow against your home's value.

A home equity line of credit (HELOC) gives borrowers the opportunity to access credit whenever they need it, up to their credit limit, by using their home as collateral for the loan. A HELOC typically has two phases of the loan. The first phase typically requires that you only make monthly payments equal to the interest rate accumulated. The second part amortizes the loan over a set term. To calculate the interest-only portion, you need to know the interest rate and the amount you've borrowed.

Things You'll Need

• Calculator

Instructions

1. Check your financial records or contact your financial institution to determine how much money you borrowed on your HELOC. Call this amount "P" for principal.

2. Divide the annual interest rate by 12 to calculate the monthly interest rate on your HELOC and call the result "I" for interest rate. For example, if you paid 6.81 percent per year, you would divide 0.0681 by 12 to get 0.005675.

3. Plug in P and I into the following equation to calculate the interest-only payment on your home equity loan: P x I. In this example, if you had borrowed $13,450, you would multiply 0.005675 by 13,450 to find your payment would be $76.33 each month.

Tips & Warnings

• Most HELOCs are variable-rate loans, so ensure the interest rate hasn't changed when you do your calculations.

• When you make interest-only payments, you do not decrease the amount of money that you owe. In order to reduce future payments, you would need to make an additional principal payment.

References

• Federal Reserve: What You Should Know About Home Equity Lines of Credit
• Foner Books: How to Calculate Mortgage Amortization
• Bankrate: HELOC Not Interest-Only Forever