Alternate name: home equity line of credit repayment period
For example, if you took out a 20-year HELOC with a 10-year draw period, you would be required to make interest payments during the first 10 years. The repayment period spans the next 10 years when you’ll make payments toward both the principal and interest.
How Does the HELOC Repayment Period Work?
For the first few years after opening a HELOC—the draw period—you’re only required to make minimum or interest-only payments. When the draw period ends, the repayment period starts, and your monthly payments include both principal and interest. The repayment period can typically last from 10 to 20 years, depending on the lender. Once the repayment period starts, you can no longer draw from the credit line. At that point, the HELOC effectively becomes more of a closed-ended loan. During the repayment period, your new monthly payment is based on your balance, interest rate, and length of the repayment period. Because your balance has to be fully repaid by the maturity date, your payment could increase significantly relative to the amount you paid during the draw period. For instance, with a credit line balance of $20,000 paid at 8% APR over 20 years, once the repayment period starts, your monthly payment would be $167.29. Some HELOCs require you to make a balloon payment once your repayment period ends. This lump-sum payment would pay off the full balance if you can afford to make it.
Alternatives to a HELOC Repayment Period
Your HELOC is secured by your home, which means you risk losing your home if you can’t afford to make the monthly payments. Consider some alternatives that can make repaying your balance more affordable.
Refinance Into a New HELOC
One option for the repayment period is to borrow another HELOC to repay your first one if you have enough equity again. The new HELOC will start with an initial draw period again, during which time you’re only required to make minimum payments.
Refinance Into a Home Equity Loan
If another HELOC is not an option, consider refinancing into a home equity loan instead of a line of credit. A home equity loan gives you the benefit of a fixed, predictable monthly payment. Unlike a HELOC, you won’t be able to continuously borrow from the loan once you’ve closed.
Refinance the Balance Into Your Primary Mortgage
You can refinance your existing mortgage and your HELOC into a new loan with new terms. You get the benefit of having a single monthly payment, but you may have to pay closing costs on the new loan.
