Liability Collection

Taking Advantage Of Your HELOC Draw Period

Your Home Equity Line of Credit or HELOC is a useful tool that can empower your finances as you borrow only those funds needed for life's many needs and pleasures. A key aspect of any HELOC is the draw period, which is the timeframe you can use to access your funds. Not all HELOC borrowers fully grasp the draw period nor do they understand how to take advantage of their HELOC. Read on and we'll examine how you can make a HELOC work great for you.

When closing on your HELOC, you should understand how long of a draw period you have. Typically, a HELOC will have a draw period from 5 to 25 years meaning:

You can access your line of credit at anytime during your draw period.

You can wait as long as you want, if ever, to tap your HELOC.

Once you tap your HELOC you will have until the end of the draw period to repay your loan. A loan amortization schedule will determine what you minimum monthly payment will be, however you can pay more than the minimum in any given month.

At the end of the draw period your HELOC is due. If you still haven't paid off your loan you will then be expected to make a balloon payment to close out your account. While a large sum of money payable at once sounds intimidating you can use this to your advantage by requesting that your lending institution convert the HELOC to a home equity loan with a fixed rate and specific loan term. If your lending institution and you cannot come to favorable terms you can apply for a home equity loan elsewhere and pay off your HELOC with that loan. More than likely your HELOC lender will want to keep your business and will arrange for a loan that is favorable to you.

You can also take your HELOC and combine it with your first mortgage should you decide to refinance your home. Simply approach a mortgage lender and ask for a new mortgage. State that you want to combine your HELOC with your present mortgage and your wish should be granted especially if you have enough equity in your home and you possess a good credit rating.

You can work a HELOC to your advantage. Unlike a credit card, a HELOC gives you ready access to a large pool of money at an interest rate far lower than what your credit card issuer could possibly offer. Yes, a HELOC is secured by your home, but it also meets many of the tax deduction requirements given for a mortgage loan.