When you take out a HELOC, you have a “draw period,” which is the specific time period you are able to access your available credit. During this time, you can make a withdrawal anytime you wish. Learn more about how to use a HELOC when you need funds to cover expenses.
How Does a HELOC Draw Period Work?
The draw period of a HELOC, which is typically 10 years, is the period when you are allowed to withdraw cash from your home equity line of credit. You can withdraw up to your available credit line until your draw period is over. During this time, you will likely be required to make monthly interest payments to your lender. Once your draw period ends, you’ll enter the repayment period. For the next 10-20 years, depending on your loan terms, you will be required to start paying down both the interest and the principal on the amount you owe. How much equity you own in the home already, what your current income and debts look like, and how likely a lender believes you are to repay your HELOC will determine how high your credit limit is. Usually, the credit limit is capped by a certain percentage of the home’s appraised value, such as 75%.
How To Withdraw Money During the Draw Period
When it comes time to withdraw funds from your HELOC, you should have a few options. Typically, you can withdraw money from a HELOC using the following methods:
Credit cardCheckCash withdrawal from bank branchOnline account transferAccount transfer request by phone
Some lenders will require you withdraw a minimum amount of cash upfront when you take out the HELOC, but others will not. Once you max out the credit line, you can no longer make withdrawals.
What Happens When the HELOC Draw Period Ends?
Once the draw period ends, you will begin to make payments on both the loan principal and interest. Usually, the repayment term is 10 years or more. You can also choose to refinance to a new mortgage loan or to a home equity loan instead. A cash-out mortgage refinance is also an option, but with whichever path you choose, you will need to make loan payments until you pay off your loan. If at all possible, it can be helpful to pay back some of the principal during the draw period. Doing so will help you pay less interest once the HELOC closes. As you get closer to the end of your draw period, confirm what your balance will be once the HELOC closes, what your repayment terms are, how much you will owe in interest, and what you will need to pay back on a monthly basis. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
