Interest on a $240,000 HELOC depends on the rate, how much you draw, and how long you carry a balance
There is no single answer because a HELOC's interest cost depends on three things you control: the interest rate you're offered, how much of the $240,000 you actually borrow, and how long you keep the money outstanding. A HELOC is not a lump sum — you draw what you need, when you need it, and you pay interest only on what you've drawn.
If you borrowed the full $240,000 at 8% interest and carried that balance for one year without making payments, you would owe $19,200 in interest alone. But most people don't borrow the full amount, and most make regular payments during the draw period (usually 5 to 10 years), which means your actual interest cost will be lower. The math changes significantly if you're paying down the balance as you go.
Current HELOC rates vary by lender and your credit profile. As of early 2024, rates typically range from 7% to 10%, though this changes with the prime rate. Your rate will be higher or lower depending on your credit score, how much equity you have, and the lender's own pricing.
Key Takeaways
- Interest on a $240,000 HELOC is calculated only on the amount you actually draw, not the full credit line.
- At 8% interest, borrowing the full $240,000 for one year costs $19,200 in interest if you make no payments.
- Most HELOCs have a draw period (5 to 10 years) when you can borrow and a repayment period (10 to 20 years) when you cannot.
- Making regular payments during the draw period significantly reduces total interest paid compared to waiting until the repayment period begins.
- Your actual rate depends on your credit score, equity position, and the lender, and will be tied to the prime rate, which moves over time.
How interest accrues during the draw period
During the draw period, you pay interest only on money you've actually withdrawn. If you draw $50,000 in month one and $30,000 in month three, you pay interest on $50,000 starting in month one and on $80,000 starting in month three. You don't pay interest on the remaining $160,000 of available credit unless you draw it.
Most lenders calculate interest daily and bill it monthly. This means the interest you owe grows each day based on your outstanding balance. If you make a $10,000 payment in the middle of the month, your balance drops and your interest accrual slows when ready.
The draw period is when you have the most control over interest cost. Every dollar you don't borrow saves you interest. Every payment you make during this period reduces the balance earning interest. Many people make interest-only payments during the draw period, which keeps the principal from growing but doesn't reduce it either.
What happens when the draw period ends
When the draw period ends (typically 5 to 10 years in), you can no longer borrow. The repayment period begins, and you must start paying down the principal. This is where many borrowers face a payment shock — the monthly payment often jumps significantly because you're now paying both principal and interest on a large balance.
If you drew $150,000 during the draw period and made only interest-only payments, you still owe the full $150,000 when the draw period ends. Now you have 10 to 20 years to pay it back. The longer the repayment period, the lower your monthly payment but the more total interest you pay.
For example, $150,000 at 8% over 15 years costs roughly $98,000 in interest. The same $150,000 at 8% over 20 years costs roughly $127,000 in interest. The difference is $29,000 — all because you extended the payoff by five years.
Comparing interest costs at different rates and balances
| Amount Drawn | Interest Rate | Interest for 1 Year (No Payments) | Interest Over 15-Year Repayment |
|---|---|---|---|
| $100,000 | 7% | $7,000 | $64,000 |
| $100,000 | 9% | $9,000 | $82,000 |
| $150,000 | 8% | $12,000 | $98,000 |
| $200,000 | 8% | $16,000 | $131,000 |
| $240,000 | 8% | $19,200 | $157,000 |
The table above shows how interest compounds across different scenarios. Notice that a 1% rate difference ($100,000 at 7% versus 9%) adds $18,000 in interest over 15 years. This is why shopping for the best rate matters, especially on larger balances.
Also notice that the repayment-period interest is much larger than the first-year interest. This is because during repayment, you're paying interest on a large balance for many years. During the draw period, if you're making payments, you're reducing that balance and lowering future interest.
How to reduce interest on a $240,000 HELOC
The most effective way to reduce interest is to pay down the principal during the draw period, not just interest. If you draw $100,000 and make $2,000 monthly payments during a 10-year draw period, you'll pay far less interest than if you make interest-only payments and then face a large balance at repayment time.
Another strategy is to borrow only what you need. If you need $80,000, don't draw the full $240,000 available. The credit line is there if you need it later, but you don't pay interest on unused credit.
You can also refinance before the repayment period begins if rates have dropped or your credit has improved. Some people convert a HELOC balance to a fixed-rate home equity loan to lock in a rate and avoid future rate increases. This is a decision to discuss with your lender, as it may involve closing the HELOC and opening a new product.
Why HELOC rates change and what that means for your interest cost
Most HELOCs are variable-rate products, meaning your interest rate moves with the prime rate. When the Federal Reserve raises rates, your HELOC rate typically rises within one to three months. When the Fed cuts rates, your rate usually falls.
This is different from a fixed-rate home equity loan, where your rate stays the same for the entire loan term. With a HELOC, your monthly payment can change, sometimes significantly. If you draw $100,000 at 7% and rates rise to 10%, your interest cost jumps from $583 per month to $833 per month — a $250 monthly increase.
For a $240,000 HELOC, rate changes matter. A 2% rate increase on a $150,000 balance costs you an extra $3,000 per year in interest. This is why some borrowers lock in a fixed rate on part of their HELOC balance if they expect rates to rise, or why they pay down the balance quickly if they're concerned about future rate increases.
Frequently Asked Questions
What's the difference between interest-only payments and principal-plus-interest payments?
Interest-only payments cover just the accrued interest each month; the principal stays the same. If you owe $100,000 at 8%, an interest-only payment is about $667 per month. A principal-plus-interest payment might be $1,200 per month, with $667 going to interest and $533 reducing the balance. Interest-only is cheaper monthly but costs far more over time because the balance never shrinks.
Can my HELOC rate be capped?
Many HELOCs include a rate cap — a maximum rate your lender can charge. Common caps are 10% to 12% above the initial rate. If your starting rate is 7% and the cap is 12%, your rate can never exceed 19%. Check your loan documents or ask your lender what cap applies to your HELOC.
What happens if I only draw part of the $240,000?
You pay interest only on what you draw. If you draw $80,000 and leave $160,000 unused, you pay interest on $80,000. The unused portion costs you nothing, but you can access it anytime during the draw period by requesting a withdrawal.
Is HELOC interest tax-deductible?
HELOC interest may be deductible if you used the borrowed money to buy, build, or improve your home. Interest on a HELOC used for other purposes — paying off credit cards, funding a business, or other expenses — is generally not deductible. Consult a tax professional about your specific situation.
What if I can't afford the payment when the repayment period starts?
Contact your lender before the repayment period begins. Some lenders offer options like extending the repayment period, converting to a fixed-rate loan, or restructuring the terms. Waiting until you miss a payment makes your options much smaller and damages your credit.