HELOC Payoff Calculator
The VA loan program offered through the Department of Veterans Affairs can offer eligible military service members a great deal on getting a loan. As with conventional loans, buying a house will allow you to build equity in your house, creating a source of personal wealth you can leverage to set yourself up to be in a better financial position. One option available to you when leveraging your built-in equity is accomplished through opening a home equity line of credit (HELOC) loan.
Although this loan type is not specific to the VA loan program, this option is still available to homeowners with a VA loan. If you decide to pursue a HELOC, you will want to be aware of how to create feasible monthly payments through your repayment schedule. Hero Loan is here to break down what a HELOC is, who qualifies, the pros and cons as well as how to determine monthly payments that will allow you to comfortably pay it off.
What is a HELOC?
A HELOC is a revolving line of credit, similar to a credit card, that is funded by your home’s built-in equity. Unlike a home equity loan or a cash-out refinance which provides you with a lump sum of cash upfront, a HELOC allows you to receive checks or a HELOC credit card which can be used to make purchases and pay bills, up to a certain credit limit.
There are two phases with a HELOC: the draw period, when you can take out and spend your money, and the repayment period when you are required to pay back the loan. The draw period usually lasts around 10 years while the repayment period usually lasts for 10 or 15 years, depending on your negotiated term. Depending on your financial standing and creditworthiness, you may be eligible to borrow against up to 85% of your home’s built-in equity with a HELOC.
In most cases, your HELOC loan comes with a variable interest rate. This means that the interest rate you pay will adjust with the market, which is typically reset annually or semi-annually. However, regulations often set an interest rate cap on a HELOC, which means that while your monthly payments could go up, the rate should not reach an exorbitant level.
Be mindful of the rates and terms offered during the negotiation period. Pay attention in particular if there’s a low introductory rate that will reset and affect the size of your monthly payments. Be aware of upfront costs and closing costs like application fees, appraisal fees, title fees, legal fees, participation fees, transaction fees, cancellation fees, and inactivity fees. These fees usually add another 2-5% in added costs based on the loan amount.
What Will Affect my HELOC Payoff Schedule?
Calculating how to pay off your HELOC loan can be tricky since it is a revolving line of credit and has a variable interest rate, meaning that it isn’t a fixed amount like with a home equity loan or cash-out refinance. This means that the pay-off schedule is like trying to hit a moving target depending on your borrowing activity during the draw period and fluctuation in the interest rate. A HELOC payoff calculator is a good place to start when determining how much you need to put towards your monthly payments to stay on top of paying off your HELOC. Complete the missing inputs below as accurately as possible to get a better estimate of what you should expect your monthly payments to look like.
- Current Balance. This is how much you have borrowed from your home equity line of credit and need to repay. Keep in mind during the draw period you are only required to pay the interest on the loan. During the repayment period, you will need to start paying off your HELOC loan. Making more aggressive monthly payments will allow you to pay off your HELOC loan faster.
- Interest Rate. This is the interest rate set for your home equity line of credit, annually or semiannually. Bear in mind the variable interest rate that can cause your monthly payments to go up or down depending on market trends, which can be indicated under your change in interest rate.
- Change in Interest Rate. This is the amount by which you expect your interest rate to go up or down. It is usually reset annually or semi-annually. Input positive numbers to indicate an increase in your interest rate and negative numbers to indicate a decrease in your interest rate.
- Payoff Goal. This is the deadline by which you want to have your HELOC paid off, set in months.
- Current Monthly Payment. This is the amount you currently contribute each month towards paying off your HELOC loan. Be sure to enter the amount you pay each month (not the minimum payment). This figure is used to determine a breakeven point of how long it will take you to pay off the balance on your HELOC.
- Additional Monthly Charges. This input considers that you are still in the draw period and plan to take out more from your HELOC before entering the repayment period.
- Annual fee. This value represents the annual fee you pay to have your line of credit open. Annual fees may be bundled in with other upfront costs. There are still closing costs and HELOC service-related expenses to consider as well.
Once you have compiled the information needed for your HELOC payoff calculator, you can see at the click of a button how much you should expect to put towards your monthly payments. A draw line chart can provide you with a good visual representation that shows you a declining slope towards $0, indicating when your repayment is complete.
What Should I Be Aware of When Choosing if a HELOC Loan is Right for Me?
Military service members who qualify for a VA loan should be aware that the VA does not guarantee HELOCs. Eligibility will depend on your credit score, built-in home equity, and other financial factors that indicate your risk potential as a borrower. This means you will want to speak with your lender about credit score requirements, your debt-to-income ratio requirements and be able to provide evidence of a steady source of income. Your loan-to-value ratio will also be influential in determining the percentage you can borrow against your home’s staked equity.
HELOC loans are a popular option for homeowners because they offer flexibility during the draw period. However, the variable interest rate can create some issues with predictability in monthly payments. A fixed interest rate may be an available option for your HELOC; however, if you are looking for more stability and security in your monthly payments, you may want to consider a home equity loan or a cash-out refinance loan, which can be backed by the VA program. HELOCs are competitive when it comes to choosing an option because they offer low funding rates. Play around with a HELOC calculator to find out which loan type will put you in the best position financially.
How Can Hero Loan Help?
Hero Loan was created to specifically address and serve the homeownership needs of eligible veterans and active-duty service members. We have assembled a team of friendly lending Experts that come from the same communities we serve, which means they can relate to our customer base on a personal level and help them choose a loan program that will put them in the best position financially.
We are proud to support and give back to our veteran community, by frequenting veteran-owned businesses and local events. We also give back through our contributions to the Fisher House Foundation, an organization that helps to provide complimentary housing arrangements for families of military service personnel undergoing medical operations.
Hero Loan works quickly to make the loan application process as painless as possible, with an efficient underwriting process that can get you approved on a loan in as little as two weeks. Give us a call at (866) 221-8394 to speak with one of our friendly and knowledgeable lending experts to get a more in-depth analysis of your HELOC payoff schedule. We are also available to answer your questions through our online chat service to help you determine your affordable monthly payments on your HELOC loan.