Home
Back
Interest-Only Payment Formula:
| From: | To: |
An interest-only payment for a Home Equity Line of Credit (HELOC) means you only pay the interest charges each month without reducing the principal balance. This results in lower monthly payments during the interest-only period, which typically lasts 5-10 years.
The calculator uses the interest-only payment formula:
Where:
Explanation: The monthly interest rate is calculated by dividing the annual interest rate by 12 and converting from percentage to decimal form.
Details: Interest-only payments provide temporary payment relief but do not reduce your principal balance. Understanding these payments helps borrowers budget effectively during the draw period and prepare for when principal payments begin.
Tips: Enter the principal amount (the amount you've drawn from your HELOC) and the annual interest rate. The calculator will show your monthly interest-only payment. All values must be valid (principal > 0, interest rate ≥ 0).
Q1: What is the typical interest-only period for HELOCs?
A: Most HELOCs have an interest-only draw period of 5-10 years, after which the loan converts to amortizing payments.
Q2: Can I make principal payments during the interest-only period?
A: Yes, most HELOCs allow voluntary principal payments during the draw period without penalties.
Q3: What happens after the interest-only period ends?
A: The loan enters the repayment period where you must pay both principal and interest, resulting in higher monthly payments.
Q4: Are there risks with interest-only HELOCs?
A: Yes, you're not building equity during the interest-only period, and payments will increase significantly when principal repayment begins.
Q5: How does this differ from a traditional mortgage payment?
A: Traditional mortgages include both principal and interest from the start, while interest-only HELOCs defer principal repayment.