When the HELOC draw period ends

For ten years the minimum may be interest only. Then the line closes to new draws and the balance starts paying down, and the payment goes up.

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The jump on $80,000

See your own balance in the payment calculator.

Five ways to prepare

1. Pay principal during the draw period. An extra $200 a month for 10 years cuts the $80,000 balance to $56,000 and the 20-year payment to about $460.
2. Lock a fixed rate on some or all of the balance if your lender offers it.
3. Refinance the HELOC into a new line, which restarts the draw period, or into a fixed home equity loan.
4. Fold it into a refinance of your first mortgage if rates have fallen.
5. Read your agreement now. Some lines require a balloon payment at the end of the draw period instead of a repayment period.

The jump at different balances

Repayment periods vary by lender; check your agreement. Some lines require a balloon payment of the full balance at the end of the draw period instead of a repayment period, which is a much bigger risk. Your agreement will say.

Your options, compared

• Start paying principal now. Even $200 a month extra during the last few years of the draw cuts the balance that will be amortized.
• Lock a fixed rate on the balance, if your lender offers it, to protect the payment from rate increases.
• Refinance into a new HELOC, which starts a new draw period. It's a fresh loan, so you'll need to qualify again. Refinancing a HELOC.
• Refinance into a fixed home equity loan with a set term and payment.
• Fold it into a first-mortgage refinance, which makes sense only if today's mortgage rates are near or below your current rate.

A timeline to work back from

• Two to three years out: find your draw-period end date and estimate the new payment.
• One year out: compare refinance options while your credit and income are steady.
• Six months out: if you'll repay on the schedule, start paying at least the future amount now to test your budget.

If you can't afford the new payment

Call the lender before you miss a payment. Many lenders offer modifications, such as extending the repayment period or a temporary interest-only arrangement, especially when you ask early. A HUD-approved housing counselor can help you prepare, at no cost.

Example

A couple drew $80,000 nine years ago and paid interest only. Next year the draw ends. They start paying $657 a month now instead of $517, cutting the balance by about $1,700 over the year and testing their budget before the switch.

Mistakes to avoid

• Not knowing your draw period's end date.
• Waiting until the payment jumps to explore options.
• Refinancing into another interest-only line without a payoff plan.

Related question: What if you can't pay your HELOC?

Also asked

Can a HELOC lender extend my draw period?

Sometimes. Some HELOC lenders will extend the draw period, especially for borrowers with good payment history and enough equity. Ask several months before the draw period ends, since an extension can be easier than a full refinance.

More in HELOC guides

• What is a HELOC?
• HELOC requirements
• How HELOC interest is calculated
• HELOC pros and cons
• Is a HELOC a bad idea?
• How to get a HELOC
• Does a HELOC show on your credit report?
• Can a lender freeze your HELOC?

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