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$50,000 at 8.5% costs $354/month for ten years — then jumps to $434 and keeps you there for twenty more.
The draw period is the friendly phase: pay interest only on what you've pulled — $50,000 at 8.5% runs $354.17 a month. Then the line freezes and the second loan starts: the balance amortizes over 15–20 years, pushing the payment to $433.91 — a 22.5% shock that hits exactly when the equity is already spent. Over the full life of that draw you'll pay $96,639 in interest, nearly double the amount you borrowed. And the tax break everyone assumes exists has fine print: since 2018 (made permanent in 2025), HELOC interest is deductible only when the money buys, builds, or substantially improves the home securing it — debt consolidation and car purchases don't count. This calculator prices both phases, the shock, the rate-float risk, and the honest after-tax cost.
Homeowners quoted a $354 interest-only payment use it before signing: the same $50,000 draw jumps to $434 when repayment starts and costs $96,639 in interest over the life — and the interest is deductible only if the money improves the house.
Because the two phases are structurally different loans. During the draw, you pay interest only — $50,000 at 8.5% is $354.17/month and the principal never moves. When repayment begins, the same balance must fully amortize over 20 years, which requires $433.91/month. That's a 22.5% jump, and it's worse at lower rates: $25,000 at 7.5% goes from $156.25 to $201.40, a 28.9% shock — the interest-only floor falls faster than the amortization payment does. Lenders are required to disclose this, but the disclosure is a number on page 14 of a document signed a decade earlier. Budget for the second payment, not the first.
Only under three conditions, all at once. First, the funds must buy, build, or substantially improve the home that secures the line — a kitchen remodel qualifies; paying off credit cards or buying a car does not, regardless of what the loan officer implied. Second, your total mortgage debt (first mortgage plus the HELOC used for improvement) must stay under the $750,000 cap. Third, you must itemize — with the 2026 standard deduction at $16,100 single / $32,200 married, most borrowers don't. When all three hold, the deduction is real: on $96,639 of lifetime interest, a 24% bracket saves $23,194. When they don't, the HELOC is just expensive unsecured-flavored debt with your house as collateral.
Most HELOCs price at prime plus a fixed margin and adjust monthly. A 2-point prime move adds $83/month on a $50,000 draw during the interest-only phase — and since the payment is pure interest, every basis point passes straight through with no amortization to dilute it. Two protections to check in your agreement: the floor (some lines can't fall below an opening rate, so you never benefit from cuts) and the lifetime cap (often 18% — legal, and catastrophic). If rate risk keeps you up, the fixed-rate home equity loan is the structural alternative: slightly higher starting rate, but the payment never moves.