During this phase, which can be as long as 20 years, you’ll have to make payments that cover interest and a portion of the loan’s principal. Once the draw period ends, you’ll enter the repayment period. With most HELOCs, you can also opt to pay more than the minimum, to lower outstanding the balance during the draw period. Changes in the interest rate will also change your required payment. That means the interest rate of the HELOC and its current balance will determine the payment.Īs you draw more funds from the line of credit, the amount of the minimum payment will rise (even though it only covers accrued interest, that interest is applying to a larger balance). During this period, your minimum monthly payments will be equal to the amount of interest that accrued that month. The draw period is the first stage, usually lasting between five and 10 years. Typically, a HELOC has two distinct stages: a draw period and a repayment period. HELOC repayment is unusual in that not only will your required payments change over time, the method used to calculate those payments will also change. After that, your HELOC rate will move up and down with interest rates. Your APR then will adjust to the market rate. It’s not uncommon for lenders to offer a low promotional rate for six months to a year. HELOCs typically have variable rates, and the most relevant figure to you as a borrower is the APR, or annual percentage rate. If a HELOC is your only option for paying for a vacation or another big-ticket item, better to put the purchase on hold. A Caribbean cruise or a gaming console, on the other hand, will be long forgotten even if you’re paying it off for decades.
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