Home equity line of credit — max line, interest-only draw payment, amortizing repayment.
A HELOC is a variable-rate second lien — payments rise (and fall) with the index. The interest-only draw period keeps the balance flat; once the repayment period starts the payment jumps because principal must now be retired in a fixed window. In the United States, the Tax Cuts and Jobs Act (TCJA) limits HELOC interest deductibility to draws used for buying, building, or substantially improving the home that secures the loan — interest on a draw used for, say, a car or tuition is no longer deductible since 2018. Confirm tax treatment with a CPA before counting on a deduction.
A Home Equity Line of Credit — HELOC for short — turns the equity in your home into a revolving line you can draw against, repay, and draw against again, much like a credit card secured by your house. It is one of the cheapest sources of borrowing available to a US homeowner because the lender is in second position behind your first mortgage and is collateralized by real property; that same fact also makes it one of the most dangerous, because a default does not just dent your credit score — it can put your home into foreclosure. Two questions decide whether a HELOC is the right tool for a given project: how much can I actually borrow? and what will the payment look like during and after the draw period? The first answer is bounded by the lender's loan-to-value (LTV) cap minus your existing first-mortgage balance; the second flips dramatically at the draw / repay boundary because a HELOC is interest-only while you are drawing and fully amortizing once the draw period closes. This calculator runs both numbers for any combination of home value, mortgage balance, LTV cap, draw amount, rate, and term, and shows the lifetime cost so you can sanity-check the total before signing.
The maximum line is bounded by the lender's combined loan-to-value cap (CLTV), expressed as a percentage of the home's appraised value, less whatever first-mortgage balance is still outstanding:
max_line = max(0, home_value × (max_ltv ÷ 100) − mortgage_balance)
The headline payment is the interest-only monthly during the draw period — the minimum payment most lenders require while you are still pulling money. With D drawn at annual rate r (as a percentage), the monthly minimum is simply:
interest_only_monthly = D × (r ÷ 100) ÷ 12
At the end of the draw period the balance is whatever you still owe — which, on a strict interest-only schedule, equals the amount drawn. The repay period that follows is a standard amortization of that balance over the repay term in months n, at the same rate (which, remember, is variable and likely to have moved by now):
amortizing_monthly = D × r' × (1 + r')ⁿ / ((1 + r')ⁿ − 1) with r' = r ÷ 100 ÷ 12
The lifetime cost is the sum of every interest-only payment during the draw years plus every amortizing payment during the repay years; the lifetime interest is that total minus the principal D. The 'effective annual rate' shown in the result panel is a simple total-interest-divided-by-(principal × total-years) approximation — convenient for back-of-envelope comparisons across HELOC offers, not a regulatory APR.
The inputs split into three blocks. The Property block needs your current home value (most lenders accept an automated valuation or a recent appraisal), your first-mortgage balance, and the LTV cap your bank will allow — 80 % is conservative, 85 % is the most common, and a few credit unions go to 90 % or even 95 % for borrowers with strong credit and low first-mortgage balances. The Draw block needs how much you actually want to take out and the rate the lender is quoting; HELOC rates are usually expressed as prime + margin, so a 0.5 % margin over a 8.0 % prime gives you 8.5 %. The Terms block has two select boxes for the draw period (5 or 10 years; 10 is the US default) and the repay period (10, 15, or 20 years; 20 is the most common). Hit the example presets to see how the line scales with home value and how the payment shape changes when you pick a shorter repay period.
You own a $500,000 home with $200,000 left on the first mortgage and a lender willing to go to 85 % CLTV. Your maximum line is therefore 500,000 × 0.85 − 200,000 = $225,000. You want to draw $50,000 to redo a kitchen, so the lender funds that and leaves $175,000 of headroom for future draws. At 8.5 % the interest-only monthly during the 10-year draw period is 50,000 × 0.085 ÷ 12 = $354.17. At month 121 the draw period closes and the loan flips to a 20-year amortizing schedule on the $50,000 balance: the new monthly is approximately $433.91 — a 22 % jump. Total interest over the full 30 years is roughly $354.17 × 120 + 433.91 × 240 − 50,000 = $42,500 + $54,138 = $96,638; effective rate is roughly 96,638 ÷ 50,000 ÷ 30 = 6.4 % per year — lower than the headline 8.5 % only because you spend the first decade paying interest on a balance that never shrinks. Now imagine you draw the full $200,000 instead: the interest-only monthly balloons to about $1,417 and the amortizing monthly to about $1,736, total interest north of $385,000. Same line, very different exposure.
Seven traps catch HELOC borrowers off guard. Variable rate — the rate floats with the prime rate; a 100 bp move on a $100,000 balance adds roughly $83/month to an interest-only payment. A fixed-rate cash-out refinance trades off a higher rate for predictability. Balloon at end of draw — a few HELOCs structure the entire balance as due-in-full at the close of the draw period rather than amortizing; check the note. Draw-period reset traps — some lenders allow a 'reset' that re-extends the interest-only period; tempting but it pushes the amortization wall further out and locks you into a longer overall horizon. Prepayment and closing costs — HELOCs often advertise zero closing costs but recoup them via early-termination fees if you close the line within the first 36 months. Second-lien risk in foreclosure — if you default and the home is sold, the first mortgage gets paid first; a HELOC lender in a depressed market may pursue you for the deficiency anyway. Frozen credit lines during downturns — in 2008 and again in 2020, lenders unilaterally froze unused HELOC capacity when home values dropped or the borrower's credit profile changed; a line you counted on for an emergency fund may not be there when you need it. TCJA tax deductibility — since 2018 (Tax Cuts and Jobs Act) HELOC interest is deductible only when the proceeds are used to buy, build, or substantially improve the home that secures the loan; using a HELOC to consolidate credit-card debt or pay tuition no longer qualifies, even though the interest rate is much lower than the alternatives.
In the United States, the HELOC's closest sibling is the HELOAN (home equity loan), a fixed-rate, fully-amortizing lump-sum second mortgage — same collateral, same LTV math, but no draw flexibility. The other common alternative is the cash-out refinance, where the entire first mortgage is replaced with a larger fixed-rate loan and the difference is paid out in cash; cash-out refis trade rate flexibility for one big closing event and a single monthly payment. Canada has no widely-marketed HELOC equivalent for homes valued below roughly C$200,000; instead Canadians use a 'home equity line of credit' branded as part of a readvanceable mortgage that is structurally similar but requires the bundled first mortgage. France retired the prêt hypothécaire rechargeable (a similar revolving-on-equity product) in 2014 because of consumer-protection concerns; today the rough equivalent is the réserve d'argent — but that is a much smaller, unsecured revolving credit, mechanically closer to a US credit card. The United Kingdom calls a second-lien product a second-charge mortgage; it is fully amortizing rather than revolving, and the regulator (FCA) requires a fresh affordability assessment for each draw, which makes the US-style 'open line you can pull from at any time' uncommon. Wherever you borrow, the universal warning is the same: a HELOC is cheap money because it is secured by the roof over your head — never draw more than you can comfortably amortize at a rate two or three points higher than today's quote.