What To Know Before Your HELOC Draw Period Ends | Bankrate

If you have a home equity production line of credit ( HELOC ), you probably know that it includes two chief phases : the HELOC draw menstruation and the HELOC refund period. Combined, these two periods typically last up to 25 or 30 years. Before your HELOC draw period ends, you should take stock of your outstanding balance and decide whether you can afford to repay it given the stream interest rate on your HELOC .

What is a HELOC draw period?

The withdraw period of a HELOC works like an exposed occupation of credit. You ’ re given a set pipeline amount that you can draw funds from, which is based on the fairness in your home. You can borrow up to the limit, pay it back and then borrow more money as many times as you want until the disembowel time period comes to a near.

The money from your HELOC can be used to pay off other higher-interest debt, make home improvements, recast and more. This draw period typically lasts between five and 10 years. During this period of the HELOC, only interest is due on the money that you ’ re borrow, although you may be charged minimal monthly payments. To illustrate how minimum monthly payments sour during the disembowel period, let ’ s say you withdraw $ 50,000 at a 5 percentage concern rate using a HELOC with a 10-year pull back time period and a 15-year refund period. Your minimum monthly requital during this drawing card period would be $ 208.33, which represents lone the monthly matter to. once the disembowel time period is over, you can not borrow from the loanword again without refinancing it first .

What is a HELOC repayment period?

After the draw period of a HELOC is over, you enter what ’ s known as the repayment period. At this charge, the loanword converts to a repayment agenda, during which both principal and interest will be due every month. Because you ’ re alone charged for your outstanding symmetry at the end of your pull menstruation, your monthly refund sum will largely depend on how much you ’ ve borrowed. repayment periods vary based on the terms of your agreement but typically last 10 to 20 years. During this time, you will not be able to make extra reap .

What to know before your draw period ends

As your HELOC nears the end of its reap period, take stock of your loanword so that you ’ re fully prepared for what comes future .

Know exactly when your draw period expires

typically, a HELOC ’ south attract period is between five and 10 years. once the HELOC transitions into the refund period, you aren ’ thymine allowed to withdraw any more money, and your monthly payment will include principal and interest. Know when the draw period ends to adequately prepare yourself for the future phase. “ This will help you plan for necessary expenses and ensure that you have the funds available to help you with your life ’ randomness priorities, including those that may be in the future, ” says Michelle McLellan, elder product management administrator at Bank of America. Keeping track of your pull back period can besides help you determine whether you want to refinance the HELOC or begin putting money into savings to use toward paying down the chief during the refund period. however, if your HELOC counterweight is already at zero at the end of the draw period, your account will typically close mechanically, McLellan says .

Understand what you’ll owe if you enter the repayment period

Knowing the broad sum of the principal and interest payment before you enter the refund phase helps you avoid surprises. Principal and pastime payments can cause a meaning change to a budget, and these payments will last anywhere from 10 to 20 years. “ It ’ s critically significant to understand what you will owe during the repayment period, ” says Adam Marlowe, principal market development military officer for Georgia ’ s Own Credit Union. “ not lone will it help you better budget down the road, but it may impact some decisions about your repayment. If you have a variable-rate loan and you ’ re in a rising-rate environment, it may make sense to begin paying off your remainder early, before your repayment period begins. Or, you may want to refinance into a fixed-rate loan for greater payment stability. ”

Jon Giles, senior vice president of home equity at TD Bank, recommends reaching out to your lender well in advance of the repayment phase and asking the follow questions :

  • Will there be a change in my interest rate during repayment?
  • Will my repayment interest rate be fixed or variable?
  • What is the change in payment per month?

Most lenders begin notifying customers at least six months before the conclusion of their draw menstruation, Giles adds. however, if you ’ re uncertain of when the loanword will move into repayment, contact your lender ’ sulfur serve department .

Alternative repayment options

You have several options for refinancing or retiring your HELOC before the draw menstruation ends. As you consider these options, keep in beware that there is no one right approach, McLellan says. “ Which choice is best for you depends on your alone situation. You can work with your lender to explore your options and determine the solution that best meets your needs. ”

Refinance into another HELOC with a fresh draw

look for a HELOC that has a low-APR introductory period that you can take advantage of for refinance purposes. This will help keep your payments down and give you more time before the payments on your principal are due. It will besides allow you to continue to borrow from your HELOC if you need to .

Refinance into a HELOC and take a fixed-rate option

If your HELOC is a variable-rate loanword, you may be worried about the fluctuate requital amounts from calendar month to calendar month. Refinancing to a fixed-rate HELOC could give you a fixed APR on the amount owed while calm allowing you to draw on the remaining funds during the draw time period .

Refinance into a traditional home equity loan

If you ’ re disquieted about varying interest on your HELOC, you can look into refinancing your line of credit into a traditional home equity lend. similar to a HELOC, a home equity loanword allows you to borrow money based on the fairness you have in your home.This option gives you a fix APR, fixed payments and a set repayment timeline. “ Rather than having a revolve lineage of credit, you receive a collocate summarize and make fix payments until the loanword is paid off, ” Marlowe says .

Pay off your HELOC

If you have the supernumerary cash, it might make sense to repay your HELOC wholly or lower the balance by applying extra amounts toward the principal .

Roll the HELOC balance owed into a first mortgage refinance

You may besides be able to consolidate the great proportion on a HELOC into a refinance of the beginning mortgage on your home, McLellan says. “ If approved, this will result in a single, even monthly payment, although you will lose the ability to make future draws, ” she says. If you choose this route, research close costs and current mortgage rates .

How to weigh your options

Before your HELOC draw period ends, have a repayment plan in plaza if you owe money. Check with your lender to see precisely how much your monthly payments will change once the principal part is due. If you can ’ thymine afford the change in monthly payments, need to borrow more money or don ’ triiodothyronine like having a variable star matter to rate, explore alternatives. Weigh the pros and cons of each option before making a decision. For exemplar, when you refinance into another HELOC, you could incur extra costs, such as early blockage fees, annual fees and application fees. In addition, it ’ randomness best to compare rates and fees from assorted lenders if you choose to refinance.

Frequently asked questions

What is a HELOC draw period?

A HELOC draw period is the part of a HELOC where you can withdraw and use the funds from your line of credit. Once the draw period is over, you will no long be able to get any extra funds and will be required to start paying back the chief .

How long does the HELOC draw period last?

The length of the draw period depends on the exact terms and conditions of your HELOC. Generally the draw period lasts between five and ten years. After the draw time period is over, you will no farseeing be able to withdraw any funds from your HELOC .

What are the minimum payments during the HELOC draw period?

During the HELOC tie menstruation, you are entirely command to pay the monthly interest each calendar month. You are able to besides pay down the star but don ’ t have to. Once the describe period is over, you will have to start paying back the principal and matter to with each monthly payment .

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