Calculator US5 · When Rates Go Up. The American Debt Handbook

Your home equity line: the payment shock

Many home equity lines let you pay interest only for the first years. See your payment now, what it becomes when repayment starts, and what paying a little principal now does.

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Cover of When Rates Go Up. The American Debt Handbook

This calculator goes with When Rates Go Up. The American Debt Handbook by JP O'Connor. The book explains what the numbers mean and what to do next.

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HELOC balance

Rate nowUsually prime plus a margin

Years left in the draw period

yrs

Repayment period

yrs

Extra principal you could pay now, a month

Two phases, two very different payments

A home equity line of credit usually has a draw period, often 10 years, when you can borrow and many plans only ask for interest. Then comes a repayment period, often 10 to 20 years, when you can't borrow any more and every payment has to cover principal and interest. The balance hasn't changed. The payment can nearly double overnight.

Why a Fed rise hits a HELOC fast

The rate on most home equity lines is the prime rate plus a margin. Banks moved prime from 6.75% to 7.00% the day after the Fed's September 2026 decision, so an interest-only payment rises with the next statement. There's no notice period and no fixed term to hide behind.

The cheapest fix is early

Paying down principal during the draw period means a smaller balance when repayment starts, a smaller payment then, and less interest every month in between. The green box shows it for your figures.

A note on tax

Interest on a home equity loan or line is deductible only if the money was used to buy, build or substantially improve the home that secures it, and only if you itemize. Money used to pay off cards or buy a car doesn't qualify. Check with a tax professional about your own situation.

Check this one. Your HELOC agreement sets the draw period, the repayment period, the margin over prime, any rate floor or cap, and whether a balloon payment is due at the end. Some lenders let you lock part of the balance at a fixed rate. Ask yours before the draw period ends.

Get the full handbook

United States · 150 pages · JP O'Connor

When Rates Go Up.

The American Debt Handbook

Your fixed mortgage didn't change. Your credit cards, HELOC and ARM did.

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