Home
Back
Interest Only HELOC Formula:
| From: | To: |
An interest-only HELOC (Home Equity Line of Credit) payment calculates the monthly interest charge on the outstanding principal balance without reducing the principal amount. This payment structure is common during the draw period of a HELOC.
The calculator uses the interest-only HELOC formula:
Where:
Explanation: The formula converts the annual interest rate to a monthly rate and applies it to the principal balance to calculate the interest-only payment.
Details: Accurate payment calculation helps homeowners budget for their HELOC obligations, understand the cost of borrowing, and make informed decisions about using their home equity.
Tips: Enter the current principal balance in currency units and the annual interest rate as a percentage. Both values must be valid (principal > 0, rate ≥ 0).
Q1: What is the difference between interest-only and principal+interest payments?
A: Interest-only payments cover only the interest charges, while principal+interest payments reduce both interest and the outstanding loan balance.
Q2: How long can I make interest-only payments on a HELOC?
A: Typically during the draw period (usually 5-10 years), after which the loan enters the repayment period requiring principal+interest payments.
Q3: Are interest-only HELOC payments tax-deductible?
A: In many cases, yes, if the funds are used for home improvements. Consult a tax professional for specific advice regarding your situation.
Q4: What happens if I only pay the interest?
A: Your principal balance remains unchanged, and you'll need to repay the full principal amount at the end of the loan term or during the repayment period.
Q5: Can I make additional principal payments during the interest-only period?
A: Most HELOCs allow additional principal payments, which can help reduce your overall interest costs and principal balance.