A HELOC isn’t permanent. Once the draw period ends, you’ll need to start making payments on your debt. Let’s take a look at how HELOC repayments work, how you transition from receiving funds to making payments, and your options during this process.
What Is the Repayment Period?
A HELOC works much like a credit card. You’ll have a fixed line of credit against which you can make charges, then you’ll need to pay those charges back. Where a HELOC differs, however, is the required payment you’ll need to make. Lenders must give you three business days from when you open a HELOC to cancel, no matter your reason.
Transitioning From the Draw Period to the Repayment Period
The transition from draw to repayment can significantly affect your budget, especially if you’ve had interest-only payments on your HELOC. Once the draw period has closed, you’ll enter the repayment period, which is when you’ll begin paying back the total amount you owe, including principal and interest. Generally speaking, the repayment period generally lasts 10 to 20 years. Be aware that a HELOC generally operates on a variable APR, which can mean that your payment amount may fluctuate as interest rates change. The interest you pay on your HELOC may be tax-deductible, but that depends on your personal situation. Consider consulting a tax advisor to see if you can deduct your interest payments. Aside from budgeting for extra expenses, you’ll want to carefully consider your options for repayment. There are a variety of paths you can take, which we explain in more detail below.
How To Make HELOC Payments
You’ll be making interest payments on your HELOC from the time the draw period begins. Once it ends, you’ll need to start paying back the principal you owe as well. You’ll work with your lender to set up payments for your HELOC, which is similar to setting up payments for other types of loans. It can often be done online.
Your Options During the Repayment Period
If when the HELOC draw period ends, you don’t feel comfortable with your current loan payment, you do have options, such as renewing your HELOC, making additional payments, or applying for a different loan.
Renew Your HELOC
Renewing your HELOC can reset the draw period, deferring the payments you’ll need to make on your principal. Be aware, however, that you’ll need to make interest payments on your renewed HELOC as well.
Make Additional Payments During the Draw Period
You can make additional payments during the draw period, which can help reduce the monthly total you’ll owe later. Payments during the draw period typically go toward interest, and additional payments can be applied toward lowering your principal. However, be aware of any penalties your lender may charge if you make additional payments. Some lenders have prepayment penalties.
Apply for a Different Loan
If you’re looking to close your HELOC as quickly as possible, you may want to consider applying for a different loan. Once approved, you can use the proceeds to repay the HELOC. Types of loans you can consider include a home equity loan, a cash-out refinance, or a personal loan. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
