HELOC Payoff Strategy: Save Thousands with Extra Payments
Paying off your HELOC early can save you significant money in interest and free up your home equity faster. This calculator shows you exactly how much you can save.
The Power of Extra Payments
Example: $50,000 HELOC at 8% over 20 years
Minimum Payment: $418/month
Total Interest: $50,320
With Extra $200/month:
New Payment: $618/month
Payoff Time: 9.5 years (10.5 years saved!)
Total Interest: $20,100
Interest Saved: $30,220
Payoff Strategies
1. Avalanche Method (Highest Rate First):
If you have multiple debts, pay minimums on all and put extra toward the highest rate debt. Since HELOCs often have higher rates than mortgages, prioritize HELOC payoff.
2. Snowball Method (Smallest Balance First):
Pay off smallest debts first for psychological wins, then roll those payments into larger debts.
3. Bi-Weekly Payments:
Instead of monthly payments, pay half every two weeks. You'll make 13 full payments per year instead of 12, accelerating payoff.
When to Prioritize HELOC Payoff
- Your HELOC rate is higher than other debts
- You want to free up your credit line for emergencies
- You're approaching retirement and want to be debt-free
- Interest rates are rising (pay off variable-rate debt first)
- You're planning to sell your home soon
When NOT to Rush Payoff
- You have higher-rate credit card debt (pay that first)
- You don't have an emergency fund (build that first)
- Your investments earn more than the HELOC costs
- The HELOC interest is tax-deductible and you're in a high bracket
Smart Payoff Tips
- Automate Extra Payments: Set up automatic transfers so you don't forget
- Use Windfalls: Tax refunds, bonuses, and raises go straight to principal
- Round Up Payments: If your payment is $418, pay $500
- Refinance if Rates Drop: Lower rate = more principal paid per payment
- Avoid New Draws: Don't borrow more while trying to pay off
Prepayment Penalties
Most HELOCs don't have prepayment penalties, but check your loan documents. Some lenders charge a fee if you pay off the entire balance within the first 2-3 years.
Expert Tips for Smart Borrowing
Bi-Weekly Payments
Pay half your monthly payment every 2 weeks. You'll make 13 full payments a year instead of 12, shortening your loan term by years painlessly.
Round Up
If your payment is $340, pay $400. That extra $60 goes 100% to principal and attacks the balance immediately.
Lump Sum Attack
Use tax refunds or work bonuses to make one-time large principal payments. Since HELOC interest is daily simple interest, this lowers your daily cost immediately.
The 'Debt Snowball'
If you have multiple debts, pay off the smallest ones first to free up cash flow, then tackle the HELOC. Psychological wins matter.