A Home Equity Line of Credit, or HELOC, is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house. Most home equity credit lines have two phases. The first is a draw period, often 10 years, during which you can access your available credit as you choose. Typically, HELOC contracts only require small, interest-only payments during the draw period, though you may have the option to pay extra and have it go toward the principal.

After the draw period ends, you can sometimes ask for extension. Otherwise, the loan enters the second phase, repayment. From here on out, you can no longer access additional funds and you make regular principal-plus-interest payments until the balance disappears. Most lenders have a 20-year repayment period after a 10-year draw period. During the repayment period, you must repay all the money you’ve borrowed plus interest at a contracted rate. Some lenders may offer borrowers different types of repayment options for the repayment period.

For detailed information regarding this loan type, please connect with our UFM loan advisor team.