HELOC Changes After 10 Years: What Borrowers Need to Know

Many homeowners use a Home Equity Line of Credit (HELOC) to access funds for home improvements, debt consolidation, or other expenses. A HELOC is a revolving line of credit secured by your home equity. Typically, a HELOC has two distinct periods: a draw period and a repayment period.

During the draw period, which usually lasts for the first 10 years, borrowers can withdraw funds as needed, up to the credit limit. They often only make interest payments during this time. However, after the draw period ends, the repayment period begins.

The repayment period usually lasts for 10 to 20 years. During this phase, borrowers can no longer access the credit line. Instead, they begin making principal and interest payments on the outstanding balance. This can significantly increase the monthly payment amount.

**Preparing for the Transition:**

* **Know Your Terms:** Review your HELOC agreement to understand the specifics of your draw and repayment periods.
* **Budget Accordingly:** Calculate your expected monthly payments during the repayment period and adjust your budget accordingly.
* **Consider Refinancing:** Explore options for refinancing your HELOC, such as converting it into a fixed-rate loan, to secure more predictable payments.
* **Pay Down the Balance:** If possible, pay down the HELOC balance during the draw period to reduce the principal amount you'll be repaying later.

Understanding the changes that occur after 10 years of a HELOC is essential for responsible financial planning. By preparing for the repayment period, borrowers can avoid payment shock and maintain their financial stability.