Understanding the HELOC Draw Period: A Guide for Homeowners
May 7, 2023
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If you're a homeowner looking to tap into the equity of your property, a HELOC (Home Equity Line of Credit) can be a useful tool. A HELOC is a revolving line of credit that allows you to borrow against the equity in your home, typically at a lower interest rate than other types of loans. But if you're considering a HELOC, it's important to understand the draw period.
What is the HELOC Draw Period?
The draw period is the time during which you can access the funds in your HELOC. Typically, this period lasts between 5 and 10 years, depending on the terms of your loan. During the draw period, you can withdraw funds from your HELOC as needed, up to the credit limit established by your lender.
It's important to note that during the draw period, you will be required to make minimum payments on the interest and principal of the loan. However, you can choose to pay more than the minimum amount to reduce the balance of the loan and save on interest charges.
Once the draw period ends, you will enter the repayment period, which typically lasts between 10 and 20 years. During this time, you will no longer be able to withdraw funds from your HELOC, and you will be required to make regular payments on both the principal and interest.
How to Manage Your HELOC Draw Period
Managing your HELOC draw period can be tricky, but there are a few things you can do to make the most of your loan:
1. Understand the terms of your loan: Be sure to read and understand the terms of your HELOC, including the draw period, interest rate, and repayment period.
2. Make payments on time: Late payments can result in fees and damage to your credit score, so be sure to make your payments on time.
3. Consider paying more than the minimum: Making additional payments on your HELOC during the draw period can reduce the balance of the loan and save you money on interest charges.
4. Use the funds wisely: Remember that a HELOC is a loan, and the funds should be used wisely. Consider using the funds for home improvements, debt consolidation, or other expenses that can increase your financial well-being.
FAQs about HELOC Draw Period
Here are some frequently asked questions (FAQs) about the HELOC draw period:
What happens after the HELOC draw period ends?
- After the draw period ends, you enter the repayment period, which usually lasts between 10 and 20 years. During this time, you cannot withdraw additional funds, and you are required to make regular payments on both the principal and interest.
Can you extend the HELOC draw period?
- It is unlikely that you can extend the draw period of your HELOC. However, you can refinance your HELOC to extend the repayment period, which can give you more time to pay off the balance.
What happens if you don't use your HELOC during the draw period?
- If you don't use your HELOC during the draw period, you are not required to make any payments. However, you may still be subject to annual fees or other charges, depending on the terms of your loan.
How much can you borrow during the HELOC draw period?
- The amount you can borrow during the draw period depends on the credit limit established by your lender and the equity you have in your home. You can typically borrow up to 85% of the appraised value of your home, minus any outstanding mortgage balance.
Can you pay off your HELOC during the draw period?
- Yes, you can pay off your HELOC during the draw period. However, you may be subject to prepayment penalties or fees, depending on the terms of your loan.
Can you access your HELOC funds online?
- Many lenders offer online access to HELOC funds, making it easy to withdraw funds as needed and manage your loan. Check with your lender to see what options are available.
Conclusion
Understanding the HELOC draw period is important for homeowners who are considering tapping into their home equity. Be sure to read and understand the terms of your loan, make payments on time, and use the funds wisely. If you have any questions or concerns about your HELOC, talk to your lender or a financial advisor for guidance.
Ready to unlock the value in your home and make smart financial decisions? Get a quote from Hitch today and experience the benefits of our digital HELOC platform. Our streamlined process, personalized approach, and commitment to your financial health make us the ideal choice for your home equity needs. Don't wait, take control of your finances with Hitch!
Hitch, Inc. NMLS #2383367 #2383367
2158 NW Toussaint Drive. Bend, Oregon 97703
1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.
2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.
3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.
4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.
5. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.