Why an interest-only payment does not reduce principal
During a HELOC draw period, the required payment may be interest only. On a $50,000 balance at a constant 8.5%, one month of interest is about $354. If the plan required only that amount, the principal would not decline in this simplified scenario. Every dollar paid above the accrued interest is what actually retires the debt. This calculator compares that baseline with the modeled payoff path after adding an extra monthly amount.
Scenarios to check against your HELOC terms
- Test a payment above accrued interest. The result shows whether the entered amount creates a declining-balance path.
- Check additional-principal instructions. Reducing principal reduces subsequent modeled interest when the rate and all other terms remain unchanged.
- Model the repayment transition. If the draw period ends soon, compare the projection with the payment schedule in the agreement.
- Watch the rate. Many HELOCs use a variable rate tied to a published index plus a margin. If your statement rate changes, rerun the estimate with that actual rate.
What this calculator assumes
A constant interest rate at today’s value, monthly compounding, no further draws on the line, and payments applied on time each month. Real HELOCs can use daily accrual, variable rates, fees, minimum-payment rules, or balloon terms, so results are a planning estimate rather than a payoff quote. Review the CFPB HELOC guidance, your agreement, and the lender’s exact payoff amount. For tax questions, use the current IRS HELOC guidance.
Method, example, and sources
How this calculator works
The model charges one-twelfth of the entered annual rate on the current balance each month, applies the stated payment, and repeats the schedule with the extra amount added. It stops each path when the balance reaches zero and compares payoff months and total modeled interest.
Worked example
For a $50,000 balance at a constant 8.5% rate, a $600 monthly path ends in 127 months with about $25,849 of interest. Raising the payment to $800 shortens the path to 83 months and reduces scheduled interest by about $9,582.
What the estimate leaves out
- Most HELOCs have variable rates; this estimate holds the entered rate constant and does not forecast index changes.
- Further draws, daily interest accrual, draw- and repayment-period rules, balloon terms, fees, and minimum-payment formulas are excluded.
- The result is not a lender payoff quote and does not evaluate home-secured default risk, refinancing, or tax treatment.
Primary sources
Frequently asked questions
Why does my HELOC balance never seem to go down?
Some HELOC plans allow interest-only payments during the draw period; others include some principal. If the payment only matches accrued interest, the principal does not fall. Check the agreement and statement, then enter a payment above interest if your goal is to reduce the balance.
What happens when the HELOC draw period ends?
You can no longer make new draws, and the agreement sets how the outstanding balance must be repaid. The CFPB notes that repayment often lasts 10 or 20 years, payments are frequently higher, and some plans can require a balloon payment. Use the terms in your own disclosure.
Are HELOC rates fixed or variable?
HELOCs usually have variable rates based on an external index plus a margin, so the APR and payment can change. This calculator holds today’s entered rate constant; rerun it after a rate change. Some plans also offer fixed-rate conversion features.
Is HELOC interest tax-deductible?
It depends on how the proceeds were used, whether the debt and home qualify, current limits, and whether you itemize. IRS guidance says interest may qualify when proceeds buy, build, or substantially improve the home securing the line; personal-use proceeds generally do not. Check current IRS guidance or a tax professional.
Should I pay off my HELOC or my credit cards first?
Keep every required payment current, then compare actual APRs, fees, protections, and consequences. Highest-rate-first minimizes interest in a fixed-rate model, but a HELOC is secured by your home, so missed-payment risk is materially different from unsecured card debt.