1. What is a HELOC Interest-Only Payment?

A HELOC (Home Equity Line of Credit) interest-only payment is the minimum payment required during the draw period, covering only the interest accrued on the outstanding balance without reducing the principal amount.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Outstanding principal balance ($)
• \( R \) — Monthly interest rate (decimal)
• \( EMI \) — Monthly interest-only payment ($)

Explanation: This calculation determines the monthly interest payment by multiplying the current principal balance by the monthly interest rate.

3. Importance of Interest-Only Payment Calculation

Details: Understanding interest-only payments helps borrowers budget effectively during the draw period and anticipate when principal repayment will begin, which significantly increases monthly payments.

4. Using the Calculator

Tips: Enter the current outstanding principal balance in dollars and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert APR to monthly interest rate?
A: Divide the annual percentage rate (APR) by 12. For example, 6% APR = 0.06/12 = 0.005 monthly rate.

Q2: Are interest-only payments permanent?
A: No, interest-only payments are typically available only during the draw period (usually 5-10 years). After that, payments include both principal and interest.

Q3: What happens when the draw period ends?
A: The repayment period begins, requiring larger payments that cover both principal and interest, often over 10-20 years.

Q4: Can I make principal payments during interest-only period?
A: Yes, most HELOCs allow additional principal payments during the draw period without penalty.

Q5: Are HELOC interest payments tax deductible?
A: Interest on HELOCs may be tax deductible if used for home improvements, but tax laws vary. Consult a tax professional for specific advice.