Home equity

What a HELOC really costs

The short answer

The rate can move, and the payment can jump when repayment begins.

The main cost is a variable APR that rises and falls with an index.
Closing costs can run 2–5% of the line, though some lenders waive them.
Watch for an annual fee, an inactivity fee, or an early-closure fee.
The catch: the cheap interest-only years hide the real payment. Model the repayment phase first.

Written by Dana Acosta

Consumer-credit writer · 9 yrs

✓ Reviewed by M. Reyes, AFC®

Last reviewed Jun 2026

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Put a real number on it

Variable

The APR type

tied to an index; it can rise

2–5%

Closing costs, if charged

some lenders waive these

Payment jump

When repayment begins

interest-only ends

The main cost is a rate that moves

A HELOC almost always carries a variable APR (APR, the yearly cost of borrowing as a percent). It's set as an index plus a margin. When the index moves, your rate moves with it. So the payment you sign up for is not the payment you're locked into. In a rising-rate stretch, it climbs.

On top of the rate, watch the fees. Closing costs — appraisal, title, origination — can run 2–5% of the line, though some lenders waive them. Then read the ongoing terms: an annual fee, an inactivity fee if you don't draw, and an early-closure fee if you pay off and close in the first few years. None are large on their own. Add them up before you sign.

The payment jump most people miss

Here's the surprise. A HELOC has two phases. During the draw period, many lenders let you pay interest only, so the monthly looks small. When the draw period ends, repayment begins — now you pay down principal too, over a shorter window. The payment can jump sharply.

Put numbers on the same $40,000 balance at an 8.5% rate:

$40,000 balance · 8.5% APRDraw phase, interest only        $283 / month
Repayment phase, 10-yr payoff    $496 / month
                                 -----
The step-up                      +$213 / month

Same balance, same rate — the payment nearly doubles because you're now retiring principal. If the rate has also risen by then, the jump is larger. Turn any rate into a payment →

⚠ The catch: the draw years hide the real payment

The cheap interest-only years make a HELOC feel affordable. They aren't the payment you'll actually carry. When repayment begins, principal lands on top and the monthly can climb well past what you budgeted for.

Model the repayment-phase payment before you draw — not the draw-phase one. If that number fits your budget, the line fits. If it doesn't, the small early payment won't save you.

The rule

Budget for the repayment-phase payment, not the draw-phase one. That single number tells you whether the line is affordable. If you want a fixed payment instead of a moving one, a home equity loan vs. a HELOC → is the comparison to run next.