HELOC, also known as a Home Equity Line of Credit, is a flexible line of credit that allows homeowners to borrow against the equity they have built up in their homes. One of the main advantages of a HELOC is that it offers more flexibility in repayment than a traditional home equity loan. When it comes to paying back a HELOC, the process is relatively simple.
Here’s how a HELOC is paid back:
During the draw period, which typically lasts for 10 to 15 years, you may only be required to pay the interest on the amount borrowed. This means that you won’t have to start paying back the principal until the draw period has ended.
If you choose to pay back the principal during the draw period, you can do so at any time. Once you have paid off a portion or all of the principal, the funds are transferred back to the line amount, which you can then redraw if needed.
After the draw period ends, you will enter the repayment period, which can last for up to 20 years. During this time, you will be required to make monthly payments that cover both the principal and interest.
It’s important to note that the interest on a HELOC is typically variable, which means that it can go up or down depending on market conditions. As a result, your monthly payments may change over time.
In summary, a HELOC offers a flexible way to borrow against the equity in your home. During the draw period, you may only be required to pay interest, and you can choose to pay back the principal at any time. Once the draw period ends, you’ll enter the repayment period, where you’ll make monthly payments covering both principal and interest. It’s essential to keep in mind that the interest rate can change over the life of the loan, so make sure you’re comfortable with that risk before taking out a HELOC.