HELOC Calculator — Home Equity Line of Credit

A HELOC acts like a credit card backed by your home equity. During the draw period — typically five to ten years — you can borrow up to your credit limit, repay, and borrow again. Payments cover only the interest on the outstanding balance, so the principal remains unchanged. This structure makes the draw period deceptively affordable: a $75,000 balance at 8.5% costs only about $531 per month in interest.

Once the draw period ends, the line closes to new borrowing and the repayment phase begins. Now you must pay both principal and interest on the outstanding balance, amortized over 10–20 years. For the same $75,000 balance at 8.5% over 20 years, the monthly payment jumps to roughly $651 — a 23% increase. If rates have risen during the draw period, the payment shock can be even more severe. Planning for this transition from day one is essential to avoid financial strain when repayment begins.

Most HELOCs carry variable rates tied to the Prime Rate, which moves with Federal Reserve policy decisions. When the Fed raises rates aggressively — as it did in 2022–2023 — HELOC payments can increase hundreds of dollars per month with little warning. A borrower who drew $100,000 at 4% in 2021 saw that payment nearly triple by late 2023 as Prime climbed.

Several strategies can manage this risk. Some lenders offer a fixed-rate conversion option, letting you lock a portion or all of your outstanding balance at a fixed rate for a fee. A Home Equity Loan (HELOAN) provides a fixed-rate lump-sum alternative if you know exactly how much you need and payment predictability matters more than revolving access. Before choosing between a HELOC and HELOAN, model both scenarios using the Scenario tab in this calculator to see the exact payment and total interest difference for your specific draw amount and timeline.

HELOC interest may be tax-deductible when the funds are used to buy, build, or substantially improve the home that secures the loan, per IRS Publication 936. This rule was tightened significantly by the Tax Cuts and Jobs Act of 2017, which eliminated deductibility for funds used for any other purpose — including debt consolidation, education expenses, or personal spending — regardless of how prior-law rules were applied to older loans.

The deduction is also subject to combined mortgage debt limits: $750,000 for loans originated after December 15, 2017, and $1,000,000 for loans originated before that date. If your total mortgage debt approaches these thresholds, only a proportional portion of your HELOC interest may be deductible. The tax consequences depend heavily on your individual situation, total debt structure, and how precisely you document the specific use of HELOC proceeds. Consulting a qualified tax advisor before drawing significant funds — especially if using the line for a mix of home improvement and personal purposes — is strongly recommended to preserve deductibility and avoid audit exposure.

A cash-out refinance replaces your entire existing mortgage with a new, larger loan at current market rates, giving you the difference in cash. If your current mortgage rate is already low, a cash-out refi forces you to refinance all of your debt at today's higher rate — potentially adding hundreds of dollars per month to your base mortgage payment. Closing costs of 2–5% of the loan amount further erode the value of smaller draws.

A HELOC leaves your first mortgage intact and untouched, which is its primary structural advantage when you have an existing low-rate mortgage. HELOC closing costs are typically minimal or even waived by competitive lenders. The trade-off is the variable rate and payment shock risks described above. As a general rule, a cash-out refi makes more sense for large, one-time needs when current rates are competitive with your existing mortgage; a HELOC is better for ongoing or uncertain expenses, phased renovation projects, or when preserving your current mortgage rate is a priority.