How does HELOC repayment work?

If you own a home with equity, a home equity line of credit (HELOC) can help you access that cash without selling or refinancing the property. HELOC works as a line of credit that uses your home’s equity as collateral.

What is the repayment period?

HELOC works in the same way as a credit card. You will receive a fixed credit limit through which you can make purchases, and then you will need to repay those transactions. However, HELOC differs in the required payment you must make.

The lender must give you three business days from the date of opening the HELOC to cancel it, regardless of your reason.

Transitioning from the draw period to the repayment period

Transitioning from the draw period to the repayment period can significantly impact your budget, especially if you are only making interest payments on your HELOC.

Once the draw period ends, you will enter the repayment period, which is when you start repaying the total amount due, including principal and interest. Generally, the repayment period lasts for 10 to 20 years. You should be aware that HELOCs typically have a variable interest rate, meaning the amount of your payment may change as interest rates fluctuate.

The interest you pay on your HELOC may be tax-deductible, but it depends on your personal situation. It is advisable to consult with a tax advisor to see if you can deduct your interest.

In addition to planning for extra expenses, you will want to carefully consider your repayment options. There are a variety of paths you can take, which we will explain in detail below.

How to repay a HELOC

You will start repaying interest on your HELOC from the beginning of the draw period. Once it ends, you will need to start repaying the principal amount due as well.

You will work with your lender to set up payments for your HELOC, which is similar to setting up payments for other types of loans. This can often be done online.

If your lender supports online payments, you should navigate to your account and the HELOC page itself. From there, you can choose to make a payment using your bank account. Otherwise, you may be able to contact your lender and make a payment over the phone. Typically, you can make a one-time payment or set up automatic payments.

Your options during the repayment period

If the draw period on your HELOC has ended and you are uncomfortable with your current loan payment, you have other options, such as renewing your HELOC, making additional payments, or applying for a different loan.

Renewing your HELOC

Renewing your HELOC can reset the draw period, delaying the payments you will need to make on the principal. However, you will also need to pay interest on your renewed HELOC.

Making additional payments during the draw period

You can make additional payments during the draw period, which can help reduce the total amount you will owe later. Payments during the draw period generally go toward interest, and additional payments can be applied to reduce principal. However, you should be aware of any penalties your lender may impose if you make extra payments. Some lenders charge penalties for early repayment.

Applying for a different loan

If you want 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 pay off your HELOC. You might consider different types of loans, such as a home equity loan, cash-out refinancing, or a personal loan.

Questions

Frequently Asked Questions (FAQs)

How is the repayment period of a HELOC calculated?

The lender should inform you of the repayment terms for the HELOC before approving the loan, according to the Federal Trade Commission.

What are the typical repayment terms for a HELOC?

Repayment terms vary by lender, but you can generally expect the repayment period to last between 10 and 20 years.

Would you like to read more content like this? Subscribe to The Balance newsletter for daily insights, analyses, and financial tips, delivered straight to your inbox each morning!

Was this page helpful?

Thank you for your feedback! Let us know why! Other

Sources:

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.

Federal Trade Commission. “Home Equity Loans and HELOCs.”

Internal Revenue Service. “Interest on home equity loans often still deductible under new law.”

Source: https://www.thebalancemoney.com/how-does-heloc-repayment-work-5270667