HELOC Payments 101: How to Calculate What You Owe Each Month
How to Calculate Your HELOC Interest Payment (And Why It Matters to Pay at Least the Minimum)
If you’ve ever asked yourself, “What do I owe on my HELOC this month?” you’re not alone. As a former assistant manager, this was one of the most common questions I received from customers. And it makes sense! Home Equity Lines of Credit (HELOCs) can be confusing, especially because payments can change month to month.
In this post, we’ll break down how to calculate your HELOC interest payment and explain why it’s essential to make at least your minimum monthly payment.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home. Think of it like a line of credit with a variable interest rate but with your house on the line.
You can borrow up to a certain limit, repay it, and borrow again. Most HELOC’s require you to pay back your interest-only payment month to month but be sure to read the fine print in your agreement to ensure you know what your obligations are for repayment.
How to Calculate Your Interest-Only Payment
The amount you owe each month depends primarily on two things:
Your outstanding balance
Your current interest rate (APR)
Here’s a simple formula to estimate your interest-only payment:
(Outstanding Balance × Annual Interest Rate) ÷ 12 = Monthly Interest Payment
Example:
Let’s say:
You’ve borrowed $30,000
Your interest rate is 8% (or 0.08)
Your calculation would be:
(30,000 × 0.08) ÷ 12 = $200/month
That $200 is your minimum interest-only payment for the month.
Why It’s Crucial to Make Your Minimum Payment
Failing to make your minimum HELOC payment can have serious consequences:
Late Fees: You may incur penalties or late charges.
Credit Impact: Missed payments are reported to credit bureaus.
Default Risk: Continued non-payment could lead to foreclosure since your home is the collateral.
Have A Repayment Plan: Before utilizing your HELOC, make sure you have a repayment plan in place to ensure you are in fact paying down debt and not eating away in your home’s equity.
Pro Tips for Managing Your HELOC
Set up auto-pay to avoid missing due dates.
Track your balance—if you draw more, your payment goes up.
Understand your rate—HELOCs have variable rates that change with the market. If prime rate increases, so will your monthly payment.
Pay more than interest when possible to reduce your debt faster.
Final Thoughts
Your HELOC can be a flexible and powerful financial tool, but it’s important to understand how your payments are calculated and why keeping up with them matters. At the very least, cover your interest each month. Better yet, pay down the principal when you can.
If you're ever unsure about your monthly HELOC payment, don’t hesitate to contact me to discuss. If you are struggling to pay down your HELOC balance, let’s talk about your refinance options. It would be my pleasure to walk you through your options.