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Repayment of a home equity line of credit requires that the borrower makes a monthly payment to the lender. For some home equity lines of credit, borrowers can make interest-only payments for a defined period, after which a repayment period begins. Interest-only payments are based on the outstanding loan balance and interest rate. During the repayment period, the payment includes both repayment of the loan principal, plus monthly interest on the outstanding balance. Loan payments for the repayment period are amortized so that the monthly payment remains the same throughout the repayment period, but during that time, the percentage of the amount that goes towards principal will increase as the outstanding mortgage balance decreases.
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To calculate the monthly payment on a $50,000 HELOC, you need to know the interest rate and the loan term length. For example, if the interest rate is 9% and the loan term is 30 years, the monthly payment would be approximately $402. This is just an estimate, and the actual monthly payment could vary based on factors such as the borrower's credit score, interest rate, the draw and repayment period and the lender's specific terms and conditions.
Home Equity Line of Credit (HELOC) payments are calculated based on the loan's outstanding balance, interest rate and the repayment period. During the draw period, you are required to make interest payments only, with principal repayments beginning when you enter the repayment period. HELOCs are typically variable-rate loans, meaning the interest rate and payment amount can fluctuate over time.
HELOCs can be a good idea for individuals who have accumulated home equity because they have lower rates than personal loans, and their interest-only payments during the draw period cushion your monthly budget. However, if rates keep rising, your adjustment at the start of the repayment period might lead to higher monthly repayments. Also, consider the higher payments you must make towards both principal and interest in the second phase after the draw period closes.
The number of months you can finance a HELOC varies by lender and the loan terms. HELOCs typically have a draw period, during which you can borrow money, and a repayment period, during which you must repay what you borrowed. The length of these periods can vary, but the draw period is typically 5-10 years, and the repayment period is 10-20 years, for a total length of 15-30 years.
