A home equity line of credit — HELOC for short — is a credit line against your home equity. It works like a credit card at first: You can use the line as needed and pay interest only on the amount charged, and a HELOC’s rates are typically variable.
Most HELOC lenders offer an interest-only payment option for the first 10 years of the credit line (known as the “draw period”). You’ll pay the monthly interest charges only, but the balance owed stays the same. When the draw period ends, the “repayment period” begins, and any balance due is typically repaid over a 15- to 20-year term in fixed installments.
What is an interest-only HELOC?
The term “interest-only HELOC” refers to the interest-only option most HELOC lenders offer with a home equity line of credit. Some borrowers prefer to make regular principal and interest payments to reduce their loan balance. However, the interest-only option comes in handy if you need short-term payment savings and plan to pay off the balance quickly.