A HELOC (home equity line of credit) is a revolving loan secured by your home’s equity. You get a credit line you can draw from during a draw period (commonly 5–10 years), often make interest-only payments while drawing, then enter a repayment period (commonly 10–20 years) when you must repay principal and interest. Rate is typically variable and may change over time.
Examples (interest-only at 7.99% on $100,000)
- Annual interest = 100,000 × 7.99% = $7,990
- Monthly interest-only payment = 7,990 / 12 = $665.83
- If interest-only period ends and the loan is amortized (example: 20-year amortization at 7.99%)
- Monthly principal & interest ≈ $836.40 (for a 240‑month repayment)
Notes
- With a variable-rate HELOC the 7.99% can change, so interest-only payments can rise or fall. If you make interest-only payments during the draw period, principal remains unchanged until you start amortizing or make extra principal payments.
Common uses of HELOC proceeds
- Home improvements and renovations (kitchen, bathroom, roof, energy upgrades)
- Debt consolidation (pay off higher‑interest credit cards or personal loans)
- Major purchases (furniture, appliances, large appliances)
- Education costs (tuition, fees, supplies)
- Bridge financing for home purchases (down payment or gap between buying and selling)
- Investment opportunities (real estate down payment, business startup) — higher risk
