The interest you pay depends on your rate, how much you borrow, and how long you carry the balance
There is no single answer to how much interest a $200,000 HELOC will cost you, because the amount depends on three things you control: the interest rate you're offered, how much of that $200,000 you actually draw, and how long you keep the money borrowed. A HELOC with a 7% rate costs far less than one at 10%. Borrowing $50,000 costs less than borrowing the full $200,000. And paying off the balance in five years costs less than carrying it for fifteen.
The math itself is straightforward: you pay interest only on the money you've actually borrowed, not on the full credit limit. If you draw $100,000 at 7% and pay it back over five years, you'll pay roughly $18,000 in interest. If you draw the full $200,000 at the same rate and timeline, you'll pay roughly $36,000. The rate you receive depends on your credit score, home equity, income, and the lender's current pricing — and that rate can change after the draw period ends.
Key Takeaways
- Interest on a HELOC is calculated only on the amount you borrow, not your full credit limit, so a $200,000 limit does not mean you pay interest on $200,000.
- Your actual interest cost depends on three variables: the interest rate offered to you, how much you draw from the line, and how long you carry the balance.
- HELOC rates are variable, meaning your monthly payment can increase if rates rise, especially after the draw period ends and you enter the repayment period.
- You can use an online calculator with your specific rate and draw amount to estimate your total interest cost before you borrow.
How the interest calculation works
A HELOC charges interest the same way a credit card does: you owe interest only on the balance you're carrying. If your HELOC has a $200,000 limit but you've drawn only $75,000, you pay interest on $75,000, not $200,000. The interest accrues daily based on your current balance and your current rate.
During the draw period — usually five to ten years — you typically pay interest-only payments each month. This means your payment covers the interest that accrued that month, but you're not paying down the principal. Once the draw period ends, the HELOC moves into the repayment period, and you must begin paying both principal and interest. Your payment will jump significantly at that point, even if your rate stays the same.
Because HELOC rates are variable, the rate you start with is not the rate you'll always pay. When the prime rate rises, your HELOC rate usually rises with it. This means your monthly payment can increase even if you haven't borrowed any additional money. Some HELOCs have a rate cap — a maximum rate you'll never exceed — but not all do.
What your rate depends on
The interest rate a lender offers you is based on the prime rate plus a margin. The prime rate is set by the Federal Reserve and changes periodically; your lender adds a margin on top of that (typically 0.5% to 2.5%) based on your creditworthiness. A borrower with a 750 credit score will receive a lower margin than one with a 650 score. The amount of equity you have in your home, your income, and your debt-to-income ratio also affect the rate you're offered.
Current HELOC rates vary widely by lender and by your personal situation. Rates have ranged from around 6% to over 10% in recent years, depending on when you're borrowing and what the prime rate is at that moment. You won't know your exact rate until you explore and the lender pulls your credit and reviews your finances. Shopping with multiple lenders is worth doing, because a difference of 0.5% or 1% can save you thousands over the life of the loan.
Comparing different scenarios
| Amount Drawn | Interest Rate | Repayment Period | Approximate Total Interest |
|---|---|---|---|
| $50,000 | 7% | 10 years | $19,500 |
| $100,000 | 7% | 10 years | $39,000 |
| $200,000 | 7% | 10 years | $78,000 |
| $100,000 | 8% | 10 years | $44,500 |
| $100,000 | 9% | 10 years | $50,500 |
| $100,000 | 7% | 15 years | $62,000 |
These figures assume you draw the full amount upfront and begin repaying when ready after the draw period ends. In reality, you might draw money gradually over the draw period, which would lower your total interest. You might also make extra payments during the draw period, which would reduce the principal you owe when repayment begins. Both of these actions lower your total interest cost.
The table shows why rate shopping matters: moving from 7% to 9% on a $100,000 draw over ten years costs you an extra $11,500 in interest. It also shows why the amount you actually borrow matters more than your credit limit. A $200,000 limit is useful as a safety net, but if you only need $75,000, you'll pay interest on $75,000.
What happens when the draw period ends
Many borrowers are surprised by what happens when a HELOC moves from the draw period to the repayment period. During the draw period, you might have been paying $500 a month in interest-only payments on a $100,000 balance at 7%. When the repayment period begins, your payment might jump to $1,200 or more per month, because now you're paying both principal and interest, and you have a fixed number of years (often ten) to pay it all back.
If your rate has also increased during the draw period — which is common when the prime rate rises — your payment will be even higher. This is why it's important to plan ahead: know when your draw period ends, calculate what your payment will be at that point, and make sure you can afford it. Some borrowers use the draw period to pay down the principal, which lowers the payment shock when repayment begins.
How to estimate your own interest cost
You can calculate your approximate interest cost using an online HELOC calculator. You'll need to enter the amount you plan to draw, the interest rate you expect to receive, the length of the draw period, and the length of the repayment period. Most calculators will show you your monthly payment and your total interest cost.
Keep in mind that this is an estimate. Your actual rate may be higher or lower than what you assume. Your rate may change during the life of the loan. You may draw the money gradually rather than all at once, or you may make extra payments. But the calculator gives you a reasonable ballpark figure to use when deciding whether a HELOC makes sense for your situation.
Before you explore, ask the lender for a Loan Estimate, which shows the rate they're offering you, the terms, and an estimate of your monthly payment. This is the closest you'll get to your actual cost before you sign.
Frequently Asked Questions
Can my HELOC rate go down if the prime rate falls?
Yes. Because HELOC rates are variable and tied to the prime rate, your rate will fall if the prime rate falls. Your monthly payment will also fall. This is one advantage of a HELOC over a fixed-rate home equity loan — you benefit when rates drop. The tradeoff is that you also suffer when rates rise.
What's the difference between interest-only payments and principal-and-interest payments?
During the draw period, you typically pay only the interest that accrued that month. This keeps your payment low but doesn't reduce what you owe. Once repayment begins, your payment includes both interest and principal, so you're actually paying down the balance. Your payment will be much higher, but you're building equity in your home again.
If I have a $200,000 HELOC but only draw $50,000, do I pay interest on the full $200,000?
No. You pay interest only on the $50,000 you've drawn. The remaining $150,000 is available to you if you need it, but you don't pay interest on it unless you borrow it. This is why a HELOC can be cheaper than a home equity loan if you don't need all the money upfront.
What happens if I can't afford my payment when the repayment period starts?
Contact your lender when ready. Some lenders will work with you to extend the repayment period or modify the terms. If you don't contact them, you risk defaulting on the loan, which damages your credit and can lead to foreclosure. It's better to address the problem early.
Is the interest on a HELOC tax-deductible?
It may be, depending on how you use the money and your tax situation. Interest on a HELOC used to buy, build, or improve your home is generally deductible. Interest on a HELOC used for other purposes is not. Consult a tax professional about your specific situation.