How HELOC interest is calculated

HELOC interest is charged daily on what you owe, which means when you pay matters, not just how much.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

The formula

Why timing helps

Because interest runs on each day's balance, paying down the line early in the cycle, or drawing late in it, lowers the average daily balance. A lump-sum paydown the day your paycheck lands saves more than the same payment at the due date.

When the rate changes

Your margin is fixed; prime moves. Most lenders apply a prime change at the next billing cycle. Prime is 7.00% as of October 28, 2026, last changed September 17, 2026. Rate change log.

Same payment, different day

On a $50,000 balance at 7.75% APR, paying $5,000 on day 1 of a 30-day cycle instead of day 30 saves about $31 in that cycle's interest. Small each month, but it adds up over a draw period.

A worked billing cycle with a mid-month draw

Say your balance is $20,000 for the first 10 days of a 31-day cycle, then you draw $30,000 for a contractor, bringing it to $50,000 for the remaining 21 days. At 7.75% APR, the daily rate is 7.75% ÷ 365 = 0.02123%.

• $20,000 × 0.02123% × 10 days = about $42.47
• $50,000 × 0.02123% × 21 days = about $222.95
• Interest for the cycle: about $265

If you'd drawn the full $50,000 on day one, the cycle would cost about $329. Drawing only when the bill is due saved about $64 this month.

How payments affect interest

Because interest accrues daily, a payment made early in the cycle lowers the balance for more days. Paying $1,000 on day 5 instead of day 25 saves about 20 days of interest on that $1,000, a few dollars a month. Small, but it adds up over years of a large balance.

What the minimum payment covers

During the draw period, the minimum is usually the interest for the cycle, sometimes plus 1% of the balance. Interest-only minimums leave the balance unchanged. In repayment, the payment is set to pay off the balance over the remaining term, recalculated when the rate changes.

How a rate change shows up

When prime changes, most lenders apply the new rate starting with the next billing cycle or a set adjustment date in your agreement. A 0.25-point increase on a $50,000 balance adds about $10 a month in interest.

A year of interest on a renovation

A homeowner draws $20,000 in March, $25,000 in May and $15,000 in August for a remodel, paying interest only. At 7.75% APR, the year's interest is about $3,070. Had she drawn the full $60,000 on January 1, it would have been about $4,650. Daily interest is why drawing as bills arrive saves money.

Also asked

Is HELOC interest compounded?

Not in the usual sense. HELOC interest accrues daily on your balance, but unpaid interest generally isn't added to the balance as long as you make the minimum payment each cycle.

Does the day you make a HELOC payment matter?

Yes, a little. Paying a HELOC earlier in the billing cycle lowers the daily balance for more days. On a $50,000 balance at 7.75% APR, paying $5,000 on day 1 instead of day 30 saves about $31.

Does a 31-day HELOC billing cycle cost more?

Yes, slightly. Interest accrues daily, so a 31-day cycle has about 3% more interest than a 30-day one at the same balance.

Do all HELOC lenders use 365 days to calculate interest?

No, but most HELOC lenders divide the APR by 365 to get the daily rate. Some use 360 days instead, which raises the interest slightly.

More in HELOC guides

• What is a HELOC?
• HELOC requirements
• When the draw period ends
• HELOC pros and cons
• Is a HELOC a bad idea?
• How to get a HELOC
• Does a HELOC show on your credit report?
• Can a lender freeze your HELOC?

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