1. What is Interest-Only HELOC Payment?

An interest-only payment for a Home Equity Line of Credit (HELOC) is a payment option where you only pay the interest charges each month without reducing the principal balance. This results in lower monthly payments during the interest-only period.

2. How Does the Calculator Work?

The calculator uses the interest-only payment formula:

Where:

• \( PMT \) — Monthly payment ($/month)
• \( P \) — Principal or drawn balance ($)
• \( r \) — Monthly interest rate (decimal)

Explanation: The monthly interest rate is calculated by dividing the annual interest rate by 12 and converting from percentage to decimal form.

3. Importance of Interest-Only Payment Calculation

Details: Understanding interest-only payments helps homeowners budget for HELOC costs during the draw period. It's crucial for financial planning and assessing affordability of home equity borrowing.

4. Using the Calculator

Tips: Enter the principal amount (the amount you've drawn from your HELOC) and the annual interest rate. The calculator will compute your monthly interest-only payment.

5. Frequently Asked Questions (FAQ)

Q1: What is the advantage of interest-only payments?
A: Lower monthly payments during the draw period, providing flexibility for borrowers who need temporary payment relief.

Q2: How long does the interest-only period typically last?
A: Usually 5-10 years, after which the loan converts to fully amortizing payments including both principal and interest.

Q3: What happens after the interest-only period ends?
A: Payments increase significantly as you begin paying down the principal balance in addition to interest.

Q4: Are there risks with interest-only HELOCs?
A: Yes, you're not building equity during the interest-only period, and payment shock can occur when the repayment period begins.

Q5: Can I make principal payments during the interest-only period?
A: Most HELOCs allow voluntary principal payments, which can help reduce future payment amounts and total interest costs.