How to Calculate Home Equity Line of Credit Payback

By Faith O

• Overview

A home equity line of credit (HELOC) is a loan taken against the equity in a house for a maximum amount and a fixed period of time. The maximum amount is usually equal to the equity available in the home. The interest rate on a HELOC is usually variable, and is computed daily.
• Step 1

Determine the principal. The principal on the HELOC that is used to compute how much you pay back is not necessarily the maximum amount of the loan, but how much you have drawn or spent from the maximum amount available to you. If you have not spent any portion of your HELOC, no payment is due.
• Step 2

Determine where you are in the lifetime of the loan. Most HELOCs have a draw period, which is usually between 5 and 10 years, during which you can make withdrawals and make (usually) interest-only payments. There is also a repayment period that depends on the terms of your particular loan, during which you are expected to make payments toward both the interest and the principal.

• Step 3

Compute the interest. The interest on a HELOC is usually variable, and is based on the prevailing interest rate. Interest is computed daily; therefore, your monthly payment not only varies with how much principal you have drawn, but also on how many days there are in a month. Therefore, in the case of a HELOC with a 5 percent interest rate on which you have drawn \$5,000, the interest in May will be \$20.55, while in June it will be \$19.89, based on the following formula: (5 percent x \$5,000)/365 days x number of days in the month.
• Step 4

Compute payment. If you are still in the draw period, your monthly payment is the same as your monthly interest. If you are in the repayment period, it will include payments toward principal. Add up all payments for both periods to compute how much you will pay during the life of the loan.
• Step 5

Use an online calculator. It's the easiest way to calculate your HELOC payment. There are several available; follow the link in Resources to a good one.
• Skill: Moderately Easy

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