Interest only HELOC payments are the loan payments that are made during the draw period of the home equity line of credit (HELOC) loan. The draw period of the equity home loan is the period of time during which funds can be borrowed as needed. This flexibility is what brings so many homeowners to a HELOC as opposed to some other financial products such as a second mortgage. Interest only HELOC payments stay in place until the draw period ends.
What happens after the interest only HELOC payments end
At the conclusion of the draw period your HELOC will go into a repayment schedule you agreed to when you first signed for the loan. The repayment HELOC rates can be fixed or variable. A vast majority of the HELOCs are of the variable rate type. It is also possible that at the end of the draw the repayment consists of a single, large balloon payment. In these instances it is important to have refinancing options for your equity home loan unless you have the funds available to pay off the balloon payment completely.
Do interest only HELOC payments vary
More than likely your HELOC was set up using HELOC rates that are variable. This means that the interest rate is calculated on a daily basis and is closely tied to the prime lending rate for that day. Because the prime rate can fluctuate daily, your ultimate monthly payment will fluctuate as well. If market conditions are optimal, the HELOC rates you pay may stay low. In the event that the prime rate rises significantly, your monthly payment will rise proportionately.
Ultimately, the interest only HELOC payment during the draw period may vary. It is best to be prepared for any changes to the payment. Keep an eye on the news and watch for stories about the prime rate and where it is headed. This will help to avoid any surprises. The interest only HELOC payments are part of the trade off for the flexibility and convenience the HELOC kind of home equity loan offers to consumers.