How a HELOC payment jumps after the interest-only period

The line in one paragraph

A HELOC is a line secured by the home. During the draw period the model charges interest on the amount you have drawn and leaves that balance in place. When the draw period ends, the same balance amortizes over the repayment term you type, and the payment jumps. The HELOC calculator reports the combined loan-to-value, the maximum line at the cap you set, the interest-only payment, the amortizing payment, and the size of that jump. The note rate is an index you type plus a margin, and it cannot rise above the lifetime cap. The index is not a live market rate. A HELOC is not cash-out, and the refinance calculator does not model cash-out. A closed-end second lien that amortizes from the first payment is a different contract and is not calculated here.

When to use

Use this guide when the question is “what does this draw cost while it is interest-only, and what does the payment become when repayment starts?” A sketch of a 40,000 draw against a house that still has a first mortgage, or a check that the draw sits inside an 80% loan-to-value cap. Change one input at a time. A higher rate and a shorter repayment term both raise the later payment, for different reasons.

It does not fit a purchase payment with tax and insurance. That is the mortgage payment calculator. It does not fit the price you can carry from income. That is the home affordability calculator. It does not fit a month-by-month audit of a fixed first mortgage. That is the amortization schedule.

The formula in plain English

Maximum line = home value × max LTV − first-mortgage balance
Combined LTV = (first mortgage + amount drawn) ÷ home value
Interest-only payment = amount drawn × annual rate / 12
Amortizing payment = the level payment that finishes the draw over the repayment months
Payment jump = amortizing payment − interest-only payment

The maximum line cannot go below zero. If the first mortgage is already above the cap, the line is zero and a draw you still type is over the limit. Combined LTV uses the first mortgage plus the draw, divided by the home value. It is blank when the home value is zero.

The interest-only payment assumes you pay the interest and do not pay principal, and that you do not draw more. The balance on the chart stays flat for those years. Interest during that phase is the interest-only payment times the number of months.

The amortizing payment is the standard fixed-rate formula on the amount drawn, over the repayment months, at the same rate. Principal and interest replace the interest-only check. The jump is the difference. If you set the interest-only period to zero, there is no jump: the amortizing payment is due from the first month, and interest-only interest is zero.

Total interest is the interest-only interest plus the interest on the amortizing schedule. The note rate is the index plus the margin, held at the lifetime cap when that sum would go higher. Both phases use that note rate. If the cap sits above the note rate, the page also prices the same draw at the cap, so you can see the payment jump under that stress. The index is a number you type. It is not a live quote. Scenario B can hold a different index, margin, or cap on the same house.

A worked example

Use the sketch the calculator opens with.

The 283.33 does not reduce the 40,000. That is why ten years of it cost about 34,000 and the balance is still 40,000 when amortization starts. The later payment is higher because it has to retire that balance in 20 years on top of the interest. The same draw at the 18% lifetime cap costs more in both phases. The interest-only payment and the amortizing payment both rise. The index that produced 8.5% is still the number you typed, not a live quote. Scenario B can hold a larger draw or a shorter repayment against the same house. The chart keeps Scenario A’s balance flat, then bends down. Scenario B is a second line, not a second house.

How to read the result

Combined LTV answers “how much of the home is already pledged once this draw is included.” The maximum line answers “how much room the cap you typed still has.” A draw above that line still produces payments, and the page says the draw is over the cap. The payments use the amount you typed. They do not silently trim it to the line.

The interest-only card is the check during the draw. The amortizing card is the check after it. The jump is how much the bill rises when principal starts. A jump near zero means the two payments are close, which happens when the repayment term is long or the rate is low. Total interest adds both phases. It is not the interest on the first mortgage. That loan is only here so the loan-to-value has a balance to subtract.

The model assumes the draw stays outstanding for the whole interest-only period. Paying the line down early, or drawing more next year, is a different balance. Fees, mortgage insurance, and the first mortgage’s own payment are outside the math.

Common mistakes

Reading the interest-only payment as the cost of the line. It is the cost of carrying the balance, not of retiring it. The balance is still there when the draw period ends, which is why the payment jumps.

Setting the cap and then ignoring it. An 80% cap with a first mortgage that already uses most of the value leaves a small line. A draw above that line is a request the formula will still price, and the warning is there so you do not treat it as available equity.

Treating the index as a live quote. You type the index, the margin, and the lifetime cap. The note rate is their sum, held at the cap. The stress card prices the same draw at that cap. The page does not fetch a market index.

Using this schedule for a loan that pays principal from the first month. That contract does not have an interest-only plateau or this jump. Price that payment on the mortgage payment calculator instead.

FAQ

What is combined LTV?

The first mortgage plus the amount drawn, divided by the home value. The maximum line uses the cap you type, not a lender’s overlay, and subtracts the first mortgage from home value times that cap.

Why does the balance stay flat and then fall?

During the interest-only years the model pays interest only, so the drawn amount does not shrink. Repayment then amortizes that amount. The chart is flat, then it declines. If you set the interest-only period to zero, the decline starts in year one.

Does the payment jump include the first mortgage?

No. Both payments are on the amount drawn. The first mortgage stays a balance in the loan-to-value math. Its own principal and interest are not added to the jump.

What if the draw is larger than the line?

The page says so. Payments and interest still use the amount you typed, so you can see the cost of a draw that would sit above the cap. The maximum line itself does not change.

Is this financial advice?

No. It is an educational schedule that runs in your browser. A lender’s disclosure is what states the index, the margin, the fees, and whether the line is still in a draw period.

Related guides

• How a mortgage payment is calculated — principal and interest on a fixed loan, plus the tax and insurance this page leaves out.
• How much home you can afford — price from income and debts, before a line against a home you already own.
• How to read a mortgage amortization schedule — the month-by-month split once a balance is amortizing.

Try it with your figures

Open the HELOC calculator, set the home value, the first mortgage, the cap, and the amount you would draw. Read the interest-only payment next to the payment after the draw period, and the jump between them. Scenario B is a second draw, rate, or term against the same house. The link keeps the inputs. The math stays in the browser.