At Santander, we get many questions on Home Equity Lines of Credit (or HELOCs). Since Home Equity Lines of Credit can be complicated, we’ve created this short guide on HELOCs and the HELOC draw period so that you can understand how they work.
HELOC Draw Period vs. HELOC Repayment Period
HELOCs are customarily used to assist homeowners in making large purchases, debt consolidation, home improvement, major appliances, education expenses, etc. Home Equity Lines of Credit are different from traditional Home Equity Loans in that a HELOC has two phases: HELOC Draw Period, and a HELOC Repayment Period. To learn more about the Santander Fixed Rate Locks or to Fix the Rate on your account, give us a call or contact your branch.
- HELOC Draw Period – During the HELOC Draw Period, which is typically 10 years, borrowers can access funds from the line of credit up to the maximum approved limit, when they need them, as they need them. Funds are accessed by transferring funds online to your checking account or writing a check. During this time, payments will be either interest- only or principal and interest depending on which option you choose. Some Banks, like Santander, also offer the Fixed Rate Lock Option, which converts the balance into a fixed rate installment loan. To learn more about the Santander Fixed Rate Locks or to Fix the Rate on your account, give us a call or contact your branch.
- HELOC Repayment Period – After the HELOC Draw Period ends, the account transitions into the repayment period. Access to additional funds is removed and repayment of the loan begins depending on the terms of the HELOC. Payments of principal and interest will be required in an amount sufficient to pay off the line by the end of the term. To learn more about your options at the End of the Repayment Period, contact us 844-726-6849.
What is a HELOC "End of Draw" Period?
Once the Draw Period has expired (typically 10 years) and Repayment Period begins, you will no longer be able to access additional funds. Most Banks will send letters to customers well in advance of the end of draw date, advising them that draw privileges will soon end, so they can prepare. Monthly payments may also change as a result but not in all cases. If there is no balance on the end of draw date, the line will be closed permanently. During this time, we advise that you meet with one of our HELOC Specialists at 855-726-1477 and explore the options you have once your draw period has ended or is ending. Our HELOC Specialist will tell you what exactly will happen when your HELOC shifts into its repayment phase and explore with you the options available to you. In addition to simply making monthly payments to pay down the balance, you may want to explore other methods of refinancing your HELOC. If you are interested in refinancing your Santander HELOC, please call one of our dedicated HELOC Specialists at: 844-726-6849.
What does this all mean to me as a homeowner?
HELOCs offer advantages that regular Home Equity Loans do not. A Loan provides funds in one lump sum with regular monthly payments of principal and interest until the loan is paid in full. HELOCs allow a customer the flexibility to access funds when they need them for both planned and unplanned expenses during the Draw Period. You will borrow, pay back, and borrow again. A HELOC can provide the security of knowing that should an emergency arise, you are able to borrow when you need it without having to wait for a loan approval that may take weeks. Since HELOCs are secured by a lien on your home, interest rates will generally be lower than for unsecured debt, like credit cards, credit limit amounts will be higher and repayment terms more flexible. Interest may also be tax deductible when used to improve your home, but you should check with your tax advisor for guidance.
Where can I find more information on HELOCs and how they work?
You can check out these great sources of free and public information about HELOCs. Of course, we here at Santander would love to talk to you about how to use a HELOC as a smart option in your financial plan. To speak with one of our HELOC specialists at 855-726-1477 or click to learn more.
Consumer Financial Protection Bureau – The CFPB has great educational information on HELOCs for borrowers.
Internal Revenue Service – This has current information on applicability of HELOC interest deductions.