Your HELOC payment is not locked in when you open the line

A homeowner opens a HELOC and sees a monthly payment of $354. They assume that’s the number for the life of the loan.

It isn’t.

Most HELOCs run in two phases. First comes the draw period, often 10 years, when you can borrow from the line and many lenders only require interest on what you’ve used. Then comes the repayment period, often 20 years, when you can’t borrow anymore and every payment covers principal and interest.

Here’s what that looks like on a $50,000 balance at 8.5%.

Interest-only is about $354 a month. Once repayment starts, the same balance over 20 years is about $434 a month. Same rate, same balance, about $80 more every month.

If you only paid interest during the draw period, your balance hasn’t moved. You still owe the full $50,000 on day one of repayment.

And the rate isn’t locked either. Most HELOCs are variable, tied to the prime rate plus a margin the lender sets. If your rate climbs two points to 10.5% before repayment begins, that same balance costs about $499 a month. That’s about $145 more than where you started.

Draw and repayment lengths vary by lender, so check your agreement for your exact terms before you borrow.

The bottom line is this: the starting payment on a HELOC is often the lowest you’ll ever pay on that line. Plan around the repayment payment, and test it against a higher rate before you sign.