A HELOC, or Home Equity Line of Credit, is a flexible borrowing option that uses your home as collateral. Instead of receiving a lump-sum payout with a traditional home equity loan, a HELOC lets you borrow against your home equity, repay it, and borrow again as needed.
Knowing when and how to use your funds responsibly can help you make the most of your home’s equity and prepare for future payments.
There are two main phases to a HELOC:
- The draw period – the time frame in which you can borrow from the line of credit
- The repayment period – the following time when you pay back the amount borrowed plus interest.
A HELOC from Elements has a 10-year draw period. During this time, you can borrow as much or as little as you need, up to the credit limit established at closing. After the draw period ends, you start repaying your balance with principal and interest payments.
Common ways to use a HELOC
Your Home Equity Line of Credit can support more than home improvements. Depending on your needs and loan terms, your HELOC may help fund several planned expenses, such as:
- Debt Consolidation (keep in mind, this turns unsecured debt into debt secured by your home)
- Tuition
- Vacation
- A New Vehicle
- A Second Home
Remember, you don’t have to use all your available credit at once. For example, if you open a $30,000 HELOC to finance a home repair and borrow $15,000, interest accrues only on the $15,000 outstanding balance, while the remaining available credit stays accessible during the draw period.
Things to consider as you manage a HELOC
Managing your HELOC wisely during the draw period can set you up for a successful repayment period. Here are some key things to consider:
1. The purpose of the funds. Before you withdraw anything, identify the goal, total expected costs, and whether a HELOC is the best borrowing option.
2. The amount you’re borrowing. Once you withdraw funds, interest begins accruing on the outstanding balance. Borrow only what you need to manage interest costs and avoid carrying a larger balance than necessary.
3. Repayment strategy. Review your terms well before the draw period ends, so you understand when principal-and-interest payments begin and what your future monthly payment may be.
During the draw period, Elements HELOC payments are interest-only. If your budget allows, making additional principal payments during this time can reduce your outstanding balance before the repayment period begins.
What happens when the draw period ends?
When your HELOC draw period ends, you can no longer borrow from the line of credit. You then begin repaying the remaining balance with monthly principal-and-interest payments.
If you have a HELOC from Elements, your remaining balance converts to a 15-year fixed-payment loan. Your monthly payments may look different during repayment. Planning ahead, monitoring your balance, and making principal payments when possible can help you prepare for that transition.
Ready to explore your options? Learn more about the Elements Home Equity Line of Credit or compare home equity products to find the borrowing option that fits your goals.
