3 Things to Know Before Your HELOC Matures

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:

1. 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.




2. 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.




3. 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.