Quick answer
During the draw period many HELOCs only require interest: balance × rate ÷ 12. Borrowing $50,000 at 8.00% (prime of 7% plus an example 1-point margin) costs about $333 a month while you draw, rising to about $418 when a 20-year repayment period starts. HELOC rates usually move with an index, so payments can change.
Key facts
How HELOC payments work
A HELOC is a revolving line secured by your home. You borrow what you need during the draw period — the CFPB uses 10 years as an example — and repay afterwards, often over ten or 20 years. Most HELOCs have variable rates set as an index plus a margin; common indexes include the US prime rate, currently 7%.
Draw period
Many plans require only interest on what you’ve borrowed. Payment = balance × annual rate ÷ 12. Paying down principal is optional but lowers later payments.
Repayment period
You can no longer draw, and the balance is repaid with interest over the remaining years, like an ordinary loan. Some plans instead require a single balloon payment at the end of the draw.
Worked example
$400,000 home, $200,000 mortgage, 80% lender limit, borrowing $50,000 at 8.00%
| Monthly payment | |
|---|---|
| Draw period (interest only) | $333 |
| Repayment period (20 years) | $418 |
| Draw period if rates rise 2 points | $417 |
| Repayment if rates rise 2 points | $483 |
Credit available at an 80% combined limit: $120,000. Borrowing $75,000 instead raises the repayment to $627.
How much can you borrow?
Lenders cap the combined loan-to-value — your mortgage plus the line, as a share of the home’s value. Each lender sets its own cap; in Texas, the state constitution limits home equity borrowing on a homestead to 80%. Available credit = home value × limit − mortgage balance. Your credit score, income and debts also affect the line you’re offered.
Before you sign
- Compare the margin and caps, not just the starting rate. Ask whether there is a lifetime rate cap and whether you can lock part of the balance at a fixed rate.
- Ask about fees: appraisal, annual fees, inactivity fees and early-closure fees vary.
- You have 3 business days to cancel a HELOC on your principal home after opening it.
- Interest may not be deductible. IRS rules allow it only when the money buys, builds or substantially improves the home that secures the loan — see home equity interest and taxes.
Compare with a cash-out refinance if you need a large lump sum and today’s mortgage rate is close to your current one.
Frequently asked questions
How is a HELOC payment calculated?
During an interest-only draw period, multiply the balance by the annual rate and divide by 12. In repayment, the balance is amortized over the remaining term like a regular loan, so the payment includes principal.
What happens when the HELOC draw period ends?
You can no longer borrow, and payments switch to principal plus interest — or, on some plans, a balloon payment is due. In the example above the payment rises from $333 to $418 a month.
What rate do HELOCs use?
Usually a variable rate: an index such as the prime rate (7%) plus a margin set by the lender. When the index rises, so does your payment.
How much equity can I borrow with a HELOC?
Lenders limit your combined mortgage and line to a percentage of the home’s value. Multiply the value by that limit and subtract your mortgage balance to estimate the maximum line.
Can a lender freeze my HELOC?
Yes. Federal rules let lenders suspend draws or reduce the limit if the home’s value declines significantly, among other reasons.
Is HELOC interest tax-deductible?
Only if the money is used to buy, build or substantially improve the home that secures it, and within the IRS limit on mortgage debt ($750,000 for loans after December 15, 2017).
Sources
- Federal Reserve H.15 — Bank prime loan rate (Oct 28, 2026)
- CFPB — Example HELOC draw period (CFPB); HELOC repayment period, often up to (CFPB) (Aug 28, 2026)
- Texas Constitution, Art. XVI §50(a)(6) — Maximum combined loan-to-value for Texas home equity loans (Nov 7, 2017)
- CFPB — Right to cancel a refinance or home equity loan on your principal home (Aug 8, 2024)
- IRS Publication 936 — Mortgage debt on which interest is deductible (loans after Dec 15, 2017) (Tax year 2025)
- CFPB: What you should know about HELOCs (brochure)
- 12 CFR 1026.40: Requirements for home equity plans
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.