How long are HELOCs?

If you own a home, you could be sitting on a powerful financial tool without even realizing it. The equity in your home could help you handle big expenses without turning to high-interest debt.

Home equity lines of credit, or HELOCs, can be a convenient way to borrow against home equity. Rising real estate prices have made the family home a tremendous source of wealth. According to one estimate, American homeowners hold close to $17 trillion worth of equity in their homes. 

HELOCs can offer a flexible and affordable way to tap into that wealth. Plus, HELOC interest rates are typically much lower than credit card or personal loan rates. 

The typical HELOC lasts 20 to 30 years, depending on the loan and lender. But the overall length is just part of the equation. HELOCs are divided into a draw period and a repayment period with different lengths. Knowing how long each phase lasts can impact how you use your HELOC.

How long does a HELOC last overall?

The length of your HELOC will depend a lot on your lender. Most HELOC term lengths are between 20 and 30 years from start to finish. 

Over that time, the nature of the HELOC loan changes. HELOCs are divided into two distinct stages:

• Draw period: The window you have to borrow from your HELOC

• Repayment period: Borrowing stops and you focus on repaying what you've borrowed

The lender and overall length of the loan both impact how long each period lasts. 

For example, a 30-year HELOC might have a draw period of 10 years. After 10 years, the draw period would end and the repayment period would last the remaining 20 years. In contrast, a 20-year HELOC might have a 5-year draw period and 15-year repayment period.

These periods impact more than when you can take money out of the HELOC. They can also impact the interest rate structure.

HELOCs can have fixed or variable interest rates. Fixed rates stay the same over the length of the loan. Variable interest rates can change. Some loans may have elements of both. For instance, a HELOC may have variable rates during the draw period, and then a fixed rate during the repayment period.

What is the HELOC draw period?

The draw period is the window of time when you can borrow against the HELOC. 

When you sign up for a HELOC, you're given a line of credit. The size of this line of credit is based on how much equity you have in your home, as well as your credit qualifications.

During the draw period, you can borrow up to the limit for that line of credit. If you pay back some of what you owe, that amount can be borrowed again later in the draw period. You can borrow, repay, then borrow again as much as you want up to your credit limit. This is a key difference between HELOCs and home equity loans. 

Some loans require you to withdraw the full amount at first, then you can repay some or all of it and reborrow for the remainder of the draw period. Other loans let you choose how much you borrow from the get-go.

Here's an example of how a HELOC could work with a $20,000 line of credit and a 10-year draw period:

In this example, the consumer was able to both borrow and repay money during the draw period. By repaying some of the money they borrowed, they could borrow more later on. 

During the draw period, they were able to borrow an overall total of $23,000 from the HELOC. That's more than the $20,000 line of credit, and it was possible because they also made two repayments to put money back into that line of credit.

During the HELOC draw period, you'll pay interest on whatever balance is outstanding. Some HELOCs may also require you to repay a portion of the amount you've borrowed. The advantage of paying back some of what you've borrowed during the draw period is that this will reduce the overall amount of interest you're charged.

What is the HELOC repayment period?

Once the draw period is over, the HELOC repayment period begins. At that point, you can no longer borrow against your line of credit. Your focus is paying off your balance. 

When the repayment period begins, you'll typically be put on a schedule to repay the balance you owe over the repayment period. So, if you have a $30,000 balance and a 20-year HELOC repayment period, you'll likely be put on a schedule to make monthly payments to pay back the $30,000 over the next 20 years. 

Rarely, you may see a HELOC that has balloon payments. This means the repayment schedule doesn't pay off all of your debt and you'll owe a big lump sum at the end of the loan. Be wary of these types of loans as they can be very risky.

In addition to repaying what you owe, you'll also be charged interest on the remaining balance. HELOCs with fixed interest during repayment are generally preferable, as a fixed rate means you’d know exactly how much your monthly payment will be. A variable interest rate would mean your monthly payment could go up or down.

It may be possible to repay your HELOC balance faster than the payment schedule dictates. The advantage would be that you'd reduce interest charges. Before you do this, check for a prepayment penalty—a fee for repaying the loan faster than scheduled. 

Can HELOC terms be shorter or longer?

Different lenders offer a variety of HELOC terms. You're unlikely to find one with an overall term of longer than 30 years. You may find one with a shorter term.

As well as varying term lengths, HELOCs can differ in other important ways:

• Interest rate 

• Fixed or variable rate 

• The formula on which variable rates are based

• Type and size of fees

It's smart to understand all these conditions before you sign up for a HELOC. Compare how competitive the costs are. Also, think about how you intend to use the HELOC.

What happens when a HELOC ends?

Typically, when a HELOC ends, you’ll have repaid any remaining balance you owe. Your monthly payments will end. Of course, your ability to borrow from the HELOC would have expired much earlier, when the draw period ended. 

If you need to borrow more money or need more time to repay what you owe, you could refinance the HELOC. If you need to borrow new amounts beyond the initial draw period, you could refinance by using a new HELOC to pay off the old one. If you simply need more time to pay back what you owe, you could refinance into a home equity loan with a longer term than the remainder of your repayment period.

Is a longer HELOC term better or worse?

A longer HELOC term can have advantages and disadvantages:

• A longer term provides flexibility. This may include a longer draw period in which you can borrow money. A longer term HELOC may also have a longer repayment period, which could give you more affordable monthly payments.

• A shorter term is likely to be less expensive. Borrowing money for a longer time means paying more interest. Longer loans also tend to have higher interest rates.

Think about both the draw period and the repayment period when you’re deciding how long a HELOC term you need. 

• The draw period should be long enough to cover your expected borrowing needs.

• The repayment period should be long enough to make your monthly payments affordable. 

Whether a longer HELOC term is better or worse depends on your situation. When you shop for a HELOC, start by thinking about what you need in terms of the time to borrow and the time for repayment. 

Once you know what timeframe will meet your needs, you can compare options from different borrowers that fit your situation. Use prequalification to check rates without impacting your credit scores. Get a quote for a fixed-rate HELOC through Achieve Loans.