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 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 carry that debt. A HELOC with a $240,000 limit does not mean you pay interest on the full amount unless you draw it all and keep it borrowed. If you draw $100,000 at 8% and pay it back in five years, you pay roughly $21,000 in interest. If you draw the full $240,000 at the same rate over the same period, you pay roughly $50,400.
The rate itself varies by lender, your credit score, your home equity, and current market conditions. Rates on HELOCs are usually variable, meaning they move with the prime rate — they are not locked in like a mortgage. This matters because your total interest cost can change month to month if rates rise.
Key Takeaways
- Interest on a $240,000 HELOC is calculated only on the amount you actually borrow and use, not the full credit limit.
- Variable rates on HELOCs typically range from prime plus 0% to prime plus 2%, and they change when the Federal Reserve changes rates.
- A $100,000 draw at 8% paid back over five years costs roughly $21,000 in interest; the full $240,000 at the same terms costs roughly $50,400.
- Interest-only payments during the draw period mean you build no equity, so switching to principal-and-interest payments later costs more in total interest.
How the interest calculation actually works
A HELOC charges interest monthly on your outstanding balance. If you draw $50,000 in month one and make no payments, you owe interest on $50,000. If you draw another $50,000 in month two and still make no payments, you owe interest on $100,000 in month two. The interest accrues daily and is added to your balance monthly.
Most HELOCs have a draw period (usually 5 to 10 years) when you can borrow and make interest-only payments, and a repayment period (usually 10 to 20 years) when you can no longer draw and must pay down principal. During the draw period, if you pay only interest, your balance stays the same and you build no equity. Once the repayment period starts, your payment jumps because you must now pay both interest and principal.
What rate you will actually see
HELOC rates are variable and tied to the prime rate, which is set by the Federal Reserve. Most lenders offer rates at prime plus a margin — usually prime plus 0.5% to prime plus 2%, depending on your credit and equity. If prime is currently 8.5% and your lender charges prime plus 1%, your rate is 9.5%.
When the Federal Reserve raises or lowers rates, your HELOC rate moves with it, usually within 30 days. This is different from a fixed-rate home equity loan, where your rate and payment never change. A HELOC rate can go up or down, which means your monthly interest cost can rise or fall without warning. Some HELOCs have a rate cap — a maximum rate you will never exceed — but not all do.
Your actual rate depends on your credit score, the amount of equity you have in your home, your income, and the lender's current pricing. Lenders with strong credit scores and high equity typically see rates 0.5% to 1% lower than those with weaker credit or less equity.
Interest cost over different timeframes
The longer you carry a balance, the more interest you pay. Here are rough examples for a $100,000 draw at 8% interest, assuming you make only interest-only payments during the draw period and then switch to principal-and-interest payments:
| Repayment Period | Total Interest Paid | Monthly Payment (after draw period) |
|---|---|---|
| 5 years | ~$21,000 | ~$1,823 |
| 10 years | ~$37,000 | ~$1,213 |
| 15 years | ~$50,000 | ~$956 |
| 20 years | ~$61,000 | ~$823 |
These numbers assume a constant 8% rate and that you draw the full amount upfront. In reality, your rate will likely change, and you may draw gradually over the draw period, which lowers total interest. The longer your repayment period, the lower your monthly payment but the higher your total interest cost.
What happens when rates rise
If you have a variable-rate HELOC and the prime rate goes up, your interest rate goes up with it. If you are in the draw period making interest-only payments, your monthly payment rises immediately. If you are in the repayment period, your payment rises because you are paying interest on a higher rate.
For example, if you have a $100,000 balance at prime plus 1% and prime rises from 8.5% to 10.5%, your rate jumps from 9.5% to 11.5%. Your monthly interest cost rises from roughly $792 to $958 — an increase of $166 per month. Over a year, that is nearly $2,000 in extra interest.
This is why HELOCs carry more risk than fixed-rate loans. You cannot predict your total interest cost because rates can move. Some borrowers protect themselves by converting part or all of their HELOC balance to a fixed-rate home equity loan, which locks in the rate but removes the flexibility to borrow more.
Interest-only payments versus principal-and-interest payments
During the draw period, most lenders let you pay interest only. This keeps your monthly payment low but means your balance never shrinks. When the repayment period begins, you must start paying principal, and your payment jumps sharply.
If you have a $100,000 balance at 8%, an interest-only payment is roughly $667 per month. When you switch to a 10-year repayment period, your payment jumps to roughly $1,213 per month — an 82% increase. Many borrowers are surprised by this jump and struggle to afford it.
Some borrowers pay down principal during the draw period even though they do not have to. Paying an extra $200 or $300 per month toward principal during the draw period can cut your total interest cost by thousands and reduce the payment shock when the repayment period starts.
How to estimate your own interest cost
To calculate interest on your specific situation, you need three numbers: the amount you plan to draw, the interest rate you are offered, and how long you plan to carry the balance. You can use an online HELOC calculator, or ask your lender for an amortization schedule, which shows exactly how much interest you will pay each month.
When you get a HELOC offer, the lender must provide a Loan Estimate that shows the interest rate, the draw period, the repayment period, and an example of what your payment will be. Read this carefully. The rate shown is usually the current rate, not a may provide rate — your actual rate may be higher or lower when you close.
If you are comparing HELOCs from different lenders, ask each one for the same information: the margin (the amount above prime), any rate caps, the draw period, the repayment period, and an example payment for a $100,000 draw. This lets you compare apples to apples.
Frequently Asked Questions
Can I lock in a fixed rate on a HELOC?
Most HELOCs are variable only, but some lenders let you convert part of your balance to a fixed rate at any time. This locks in your rate on that portion but usually costs a fee and removes the flexibility to redraw. Ask your lender whether they offer this option before you open the account.
What happens to my HELOC if interest rates drop?
Your rate drops with the prime rate, so your monthly interest cost falls. This is the upside of a variable rate. However, lenders sometimes raise their margin (the amount above prime) when rates drop, so your actual rate may not fall as much as the prime rate does.
Is the interest on a HELOC tax-deductible?
Interest on a HELOC used to buy, build, or improve your home may be tax-deductible if you itemize deductions and meet other requirements. Interest on a HELOC used for other purposes is not deductible. Consult a tax professional about your specific situation.
What if I only draw part of the $240,000 limit?
You pay interest only on what you draw. If you draw $80,000 and leave $160,000 unused, you pay interest only on the $80,000. The unused portion costs you nothing until you borrow it.
How do I know if my HELOC rate is competitive?
Compare the margin (the amount above prime) across lenders, not just the current rate. A lender quoting prime plus 0.75% is offering a better margin than one quoting prime plus 1.5%, even if the current rates look close. The margin is what you will actually pay over time.