HELOC Basics: Understanding the Draw and Repayment Periods

A Home Equity Line of Credit (HELOC) can be a useful way to fund home improvements, tuition, or other big expenses. Understanding how the draw and repayment periods work can help you decide if it’s the right option.

What is a HELOC?

A HELOC is a credit line backed by your home’s equity. It’s similar to a credit card where you borrow as needed up to a limit, instead of receiving a lump sum like you would with a home equity loan. Most lenders allow borrowing up to 80% of your home’s value, minus what you owe on your mortgage.

How does the draw period work?

The draw period is the first phase of a HELOC, usually lasting up to 10 years. During this time, you can take out money as needed and repay it to make those funds available again. You only pay interest on what you borrow.

For example, if you have a $30,000 HELOC and withdraw $5,000 for a kitchen upgrade, you still have $25,000 available. You’ll only pay interest on the $5,000 until the repayment period starts. If you repay that $5,000, your available balance goes back to $30,000, allowing you to borrow again as needed during the draw period.

What happens in the repayment period?

When the draw period ends, the repayment period begins. You can no longer borrow funds and must start repaying both principal and interest. This phase usually lasts 10 to 20 years, depending on your loan terms.

Because HELOCs often have variable interest rates, your payments may change. Some lenders also charge early repayment fees, so check the terms before borrowing.

What can you use a HELOC for?

Common uses include:

• Home renovations or repairs
• College tuition
• Debt consolidation
• Emergency expenses

A HELOC offers flexibility, but it’s best used for expenses that add long-term value.  Learn more about practical uses for a HELOC. 

How to get started

Before applying, compare lenders to find the best rates, terms, and benefits. Some lenders offer discounts for automatic payments. Understanding fees and repayment terms can help you choose the right option.

A HELOC is a big financial decision. If you’re thinking about applying, our team can help you explore your options.

Contact us today!

Home Equity Lines of Credit are offered and originated by Savers Bank. (NMLS ID #405750) 

Disclaimer: The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.

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