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HELOC interest-only calculator

By Jude Wallis

During an interest-only draw period, a HELOC charge is the drawn balance times the annual rate, divided by 12. $50,000 at 8 percent is $333.33 a month and $4,000 a year.

Interest-only monthly charge

$333.33

$4,000.00 a year if the balance and rate do not move.

Drawn balance
$50,000.00
Annual interest
$4,000.00
Monthly charge
$333.33
$

The amount already drawn, not the unused line.

%

The current annual rate on the drawn balance. 8 here means 0.08.

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On this page

The formula

Im=B×r12I_m = \dfrac{B \times r}{12}

BB is the drawn balance. rr is the annual rate as a decimal. ImI_m is the interest-only monthly charge if the balance and rate do not move.

Interest only on the amount already drawn

A HELOC is a revolving line secured by home equity. Interest is charged on the drawn balance, not automatically on the unused room.

At $50,000 and 8 percent, annual interest is $4,000 and one twelfth is $333.33 after rounding. At $20,000 and the same rate, annual interest is $1,600 and the monthly amount is $133.33.

Paying only the interest leaves the principal unchanged. How a HELOC works is the explainer. This page is the draw-period identity.

Draw period and repayment period are different jobs

During the draw period the borrower can usually take funds, repay them and draw again. The interest-only figure on this page belongs to that phase.

When repayment begins, new draws stop and principal joins the payment. That later bill uses an amortising formula, not this one. The loan payment calculator is that later identity once the remaining balance, rate and term are known.

A small required charge during the draw period does not imply the same charge after the draw period.

The rate can move while the balance does not

Most HELOC rates are an index plus a margin. When the index resets, the annual rate can move even if no new money is drawn. The same identity then uses the new rate.

Both worked examples hold the rate at 8 percent and change only the balance, so the balance effect is visible on its own.

How home equity works is the residual value behind the security. Principal is the amount still owed before the next interest charge.

What this page is not doing

It does not approve a line, set a combined loan-to-value ceiling, or convert a variable rate into a fixed one.

It also does not amortise the balance. Treat the output as one twelfth of B×rB \times r from the two inputs you typed. This is educational material, not financial advice.

Worked examples

Interest only on a \$50,000 balance

A HELOC has $50,000 outstanding at an 8 percent annual rate. Using 0.08 as the annual rate, what are the interest-only monthly and annual charges?

  1. Annual interest is 50000×0.08=400050000 \times 0.08 = 4000, so $4,000.
  2. Divide by 12: 4000/12=333.333…4000 / 12 = 333.333\ldots, which rounds to $333.33 a month.
  3. The balance remains $50,000 when only the interest is paid.

The interest-only charge is $333.33 a month and $4,000 a year on the $50,000 balance at an annual rate of 0.08, or 8 percent.

Interest only on a \$20,000 balance

The annual rate remains 8 percent, or 0.08, but the HELOC balance is $20,000. What are the interest-only charges?

  1. Annual interest is 20000×0.08=160020000 \times 0.08 = 1600, so $1,600.
  2. Divide by 12: 1600/12=133.333…1600 / 12 = 133.333\ldots, which rounds to $133.33 a month.
  3. Paying only $133.33 leaves the $20,000 principal unchanged.

The interest-only charge is $133.33 a month and $1,600 a year on a $20,000 balance at an annual rate of 0.08.

Reading the unused line as if it already costs interest

Interest is charged on the drawn balance under the agreement, not on every unit of unused room. A line with $20,000 drawn is a $20,000 interest base at the current rate, even if unused room remains above that.

The unused room can still matter for fees, minimums, or a later draw. It is not the BB in this formula.

Common questions

Does paying the interest-only amount reduce the balance?

No. Interest-only means the required charge covers the period's interest. Principal falls only when extra is paid or when repayment begins.

Why can the payment rise without another draw?

A variable rate can reset upward, or the line can enter repayment and begin returning principal.

Is a HELOC the same as a home equity loan?

No. A HELOC is revolving. A home equity loan advances a lump sum and then amortises it. See HELOC against a home equity loan.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.