Remember, way back when? You decided to dip into your home’s equity to update your living space. You did your homework—compared a home equity line of credit (HELOC) to a home equity loan, not to mention other options, and chose the HELOC so you could withdraw the money as needed. Smart!
It’s hard to believe, but your HELOC is nearing maturity. That means you’re getting close to the time when you can no longer draw out funds. What happens now?
Here’s what you need to know:
Note the end date of your draw period. The standard draw period on a HELOC is usually 10 years. But, yours could be different. After this date, the HELOC will transition from the draw period to the repayment period, in which you no longer withdraw any funds and your monthly payments (which will include both principal and interest) will change.
Note how much you’ll owe when you enter the repayment period. If you like to stay on top of your finances, you’ve probably already worked your monthly payment into your budget. Either way, this may be the perfect time to meet with your financial advisor to create a timely repayment plan.
Do your research. As you approach the end of your HELOC draw, you’ll need to consider your options going forward. Here are four options:
Refinance into a new HELOC with a new draw period—This option allows you to continue accessing HELOC funds while postponing the principal pay-off period. If this makes the most sense for your situation, be sure to choose something with a low annual percentage rate and flexible options such as interest-only payments or the ability to fix a portion of the balance.
Refinance into a home equity loan—This option gives you a fixed interest rate, but without continued access to the draw money.
Pay off your HELOC—If you have the extra cash, it may make sense to pay the fully amortized monthly payments and eventually pay down your balance to zero. Don’t be shy about contacting your lender to see if they will fix the interest rate on the outstanding balance.
Roll your HELOC into a mortgage refinance—Don’t opt for this one without thoroughly researching the costs. Refinancing a first mortgage, and adding your HELOC, may seem easy-peasy, but closing costs and other fees may make it the more expensive choice.
Learn more about HELOCs
FAQs
The maturity date on a HELOC marks when you can no longer access your credit line, and you must begin repaying the outstanding principal balance plus interest.
What happens when HELOC matures? ›
The maturity date on a HELOC marks when you can no longer access your credit line, and you must begin repaying the outstanding principal balance plus interest.
What not to do when getting a HELOC? ›
Don't: Use it to Pay for Vacations, Basic Expenses, or Luxury Items. You have worked hard to create the equity you have in your home.
How do you know if a HELOC is a good idea? ›
HELOCs work best if you require an indefinite sum or need funds for an extended period of time. And the money should go towards improving your home or your financial profile.
What happens after 10 years on a HELOC? ›
The HELOC end of draw period is when you enter the repayment phase of your line of credit. You are now required to begin paying back the principal balance in addition to paying interest. At this point you may no longer access funds and you may no longer convert a variable rate to a fixed rate.
What happens at end of HELOC? ›
What is a HELOC repayment period? Once the draw period is over, the HELOC will transition to the repayment period. At this point, you can't borrow against the line of credit anymore, and you'll start paying back what you borrowed.
What does it mean when a loan matures? ›
Loan maturity date refers to the date on which a borrower's final loan payment is due. Once that payment is made and all repayment terms have been met, the promissory note that is a record of the original debt is retired. In the case of a secured loan, the lender no longer has a claim to any of the borrower's assets.
What is the negative side of a HELOC? ›
Disadvantages Of Getting A HELOC
Interest Rates May Rise: All HELOCs start with a variable rate and quite often it is a promotional rate that changes to a higher variable rate after the promotion ends. After the HELOC draw period (usually 10 years) a HELOC will adjust to a fixed rate.
Can you lose your home over a HELOC? ›
Consider a HELOC if you are confident you can keep up with the loan payments. If you fall behind or can't repay the loan on schedule, you could lose your home.
Does HELOC hurt credit rating? ›
It can have a small impact on your credit score when you apply for one, but a larger one if payments are late or missed. As additional debt, it can ding it — but can also boost it as an enhancement of your total available credit.
What is considered a good HELOC rate? ›
What Is a Good HELOC Rate? A competitive HELOC rate for most homeowners currently ranges from 8% to 10%. Several factors impact the interest rate such as prime rate, loan repayment term and your credit history.
How does a HELOC work for dummies? ›
It is a second mortgage or a first mortgage if your house is paid off, on the home that lets you borrow against the equity that you have in your home. The borrower can advance funds from the HELOC whenever they need it and repay it back to the bank in one lump sum or just pay the accrued interest each month.
What is the monthly payment on a 100k HELOC? ›
If you took out a 10-year, $100,000 home equity loan at a rate of 8.75%, you could expect to pay just over $1,253 per month for the next decade. Most home equity loans come with fixed rates, so your rate and payment would remain steady for the entire term of your loan.
Should I pay off my HELOC early? ›
The short answer? A resounding yes, because doing so has many benefits. If you're making regular payments on your HELOC, you may be able to pay off your debt sooner, so you're paying less interest over the life of the loan. You also decrease your loan to debt ratio, which is attractive to lenders.
How long after a HELOC can I sell my house? ›
Having a HELOC won't prevent you from being able to sell your home. You'll need to repay that HELOC before you see any money from the sale of your home. Paying it off early could come with penalties, so review the paperwork you got when you opened your HELOC to see if yours does.
What happens if loan is not paid by maturity date? ›
Loans that are not paid by the maturity date become defaulted. This means that the borrower has failed to meet the loan requirements, and the lender may pursue alternate legal means to regain the money, including suing the borrower or petitioning for payment to be withheld from the borrower's paycheck.
Can I open a HELOC and not use it? ›
While having an unused HELOC can be advantageous in many ways, it's essential to be aware of the potential costs. Some HELOCs come with annual fees or maintenance fees, which you might still have to pay even if you don't use the credit line. The fees you could incur, even with an unused HELOC, include: Inactivity fees.
What does maturity date mean on a equity line of credit? ›
A maturity date is the specific date on which the principal amount of a debt—like an installment loan, mortgage or bond—is due, along with any interest payments. Maturity dates help lay out the timelines of investments or loans and can affect interest rates and the level of risk associated with products. Key takeaways.
How long can you keep a HELOC open? ›
A home equity line of credit (HELOC) has terms comparable to home equity loans, typically lasting five to 30 years. However, a HELOC is an open credit line that you can use as needed. Just like with a credit card, you'll make payments based on what you borrow, plus the interest charged on the balance you carry.
