HELOC Interest Only Payments

[Joe Stout]

Good morning, wondering why my co-worker is paying $700 in interest only payments but has been told that he can't take out any money from his $130,000 Home Equity Line Of Credit (HELOC). Don't you only need to pay on a HELOC if you have taken out the money and actually USED it?

What checks do banks do when you use that money? I would like to use a HELOC to reimburse my business partner for funding a rehab. Wanted to fully understand that process. Difficult for me to meet with banks during the day as a W-2 employee.

[Andrew Postell]

@Joe Stout yeah, agree with the above post that sounds like he's maxed out.  

Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are higher now...but what will they be in 5 years?, Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.