Quote from @Zachary Cain Humphrey:
Quote from @Ryan Muska:
They are adjustable rate.
Typically need to be in second lien position (there are exceptions).
They are like a credit card (pay it off and use it again as many times as you like during the draw period).
There may be a required initial draw amount you may not be allowed to payoff for a certain period of time.
Blended rate with a first mortgage and a HELOC in second may be higher rate than just cash-out refinancing. So, don't be bound to the rate of the first mortgage!
You said, "They are like a credit card (pay it off and use it again as many times as you like during the draw period). What do you mean by paying the heloc off during the draw period? Do you mean progressively pay off the heloc so it stays perpetually open for use?
Great question!
For a 30 year HELOC, there may be 5 of those years where you can actually use the money (this is the draw period) whereas the rest of the 25 years are used to paydown the remaining balance at the end of the 5yr draw period.
You will also be required to make some sort of monthly payment during the draw period if you have a balance left on the HELOC. This may be principal and interest or it may just be interest-only.
But if you were to payoff the balance on the HELOC before the draw period is complete, you can use it again since there is still time remaining on the draw period.
Further, if you have a HELOC for $100k and need to use $50k now and the other $50k 6 months from now, you can do so! As long as you are not going above your draw limit, you can use it and pay it off as much as you want. Just like a credit card!
I hope this shed some light on the situation!
