What Is a HELOC Repayment Period?

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DEFINITION

A HELOC repayment period is the portion of your home equity line of credit loan term when you're required to repay the outstanding balance. You won't be able to borrow from your line of credit once the repayment period begins.

Definition and Examples of a HELOC Repayment Period

For the first few years after opening a home equity line of credit, or HELOC, you're only required to make low minimum payments. Then the HELOC repayment period begins. This is when the credit line is closed for new purchases and you're required to pay back the balance, with interest.

  • 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.

If your HELOC has a variable interest rate, your monthly payment amount could change when the correlated rate changes. Your monthly statement should include your interest rate.

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 where you're only required to make minimum payments.

Be careful about using the new line of credit for new purchases. Increasing your balance can make it tougher to make the monthly payments once you start the next repayment period.

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 an 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.

Draw Period vs. Repayment Period

Draw Period Repayment Period
Payments on interest only Payments on principal and interest
Ability to use the credit line, up to the limit No access to the credit line

Key Takeaways

  • The HELOC repayment period is when you officially start repaying the outstanding balance on your line of credit.
  • Once the repayment period begins, the line of credit can't be accessed for new credit advances.
  • Your monthly payment will likely increase as you start paying back the balance with interest.
  • If your payments are too high, you can consider refinancing the HELOC into another HELOC, a home equity loan, or your primary mortgage.

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Article Sources

  1.  Consumer Financial Protection Bureau. “What You Should Know About Home Equity Lines of Credit,” Page 9.

  2. Discover. “How Home Equity Loan & HELOCs Work: Rates, Terms and Repayment.”

  3. Consumer Financial Protection Bureau. “What You Should Know About Home Equity Lines of Credit,” Page 8.

  4. Federal Trade Commission. “Home Equity Loans and Home Equity Lines of Credit.”