Question about Terms of HELOC

[Paul Ellington]

My wife and I are scheduled to close on a HELOC this upcoming week and throughout the process banks advertised interest only payments during the draw/advancement period of 10 years. When I received the final paperwork I noticed my minimum monthly payment was "the greater of $100 or the accrued finance charge, plus any fees and amounts past due." I interpret this to mean I owe $100/mo. regardless of whether I use it or not and that's in addition to the $100 annual fee that is waived if I accumulate over 100 dollars in interest over the year. My question to anyone with experience is, Is this a normal term for a HELOC or are there banks that will allow me to pay nothing unless I'm using the HELOC? I called around to roughly 10 banks to find one that offers a HELOC on an investment property and I'm wondering if that's why the terms are not what I originally anticipated. Any help would be appreciated and for what it's worth I think we will still close because at the current rate if I draw 25k out of the HELOC my monthly payment will be roughly $100 so I can then deploy the 25k and at least feel like my monthly payment isn't a waste. I'm hoping to use this money plus personal capital to buy and fix a house to later refinance (BRRRR) and repay what I borrowed on the HELOC. For $100/month having 25k to invest doesn't seem bad at all but someone reading this may disagree and I'd love to hear any opinions. Thanks!

[Kyle J.]

@Paul Ellington If I understand your question correctly, it sounds like you’re asking whether or not you’ll have to pay $100/month even if you have a zero balance. If so, then I’d say the answer to that would be no.

Granted I haven't read all the disclosures for your HELOC loan, and you only included a very small excerpt from part of one line. However, I do know a couple things that make me fairly confident of my answer.

Aside from something like a small annual fee (which you've already said is $100/year), one of the main benefits of HELOCs is that if you don't use them you don't have to pay. So it would be extremely uncommon to have to pay as much as $100/month when you a zero balance. In fact, I've never heard of a lender charging HELOC fees like that.

On the other hand, it is common for lenders to require a $100/month minimum monthly payment when you have a balance on your HELOC. In fact, I just took a look at the disclosures from one of my own HELOCs and that is exactly what it requires.

But when I don’t use them, I don’t pay anything. And I’m sure if you don’t use yours, you won’t have to either.