If you’re trying to figure out how to fund your home improvement project, you may have heard about a home equity line of credit, or HELOC. If you have, you’re probably aware that it’s a cross between a credit card and a home equity loan, where you have a set amount of money available for you to borrow as you need it. What might not be so clear, though, is how HELOC payments work, especially if you’ve never used a line of credit before.

Fortunately, HELOC payments aren’t that complicated. All you have to do is remember three points.

You Don’t Have to Pay During the Draw Period (but you Probably Should)

As previously mentioned, when you get approved for a HELOC, you have a set amount of money you can borrow, also known as your credit limit. You can now borrow up to your credit limit for a certain amount of time, which is called the draw period. The draw period usually lasts for a few years, so you don’t have to feel rushed.

During the draw period, you don’t have to worry about repaying any of the money you borrowed from your HELOC. However, it’s in your best interest to repay the amount you’ve borrowed as soon as you can. Since a line of credit operates on the same principle as a credit card, the more you pay back, the more money you’ll be able to borrow in the future.

Paying back the money you borrow as soon as possible also means you’ll end up paying less throughout the life of your HELOC. Here’s why:

You Only Pay Interest on the Money you Borrow

When you get approved for a HELOC, you’ll also get a variable annual interest rate. However, you’ll only have to pay interest on the money you borrow. That means if you withdraw $1000 from your HELOC in July and pay back $900 in August, you’ll only be charged interest in August for the $100 you still owe.

This is one of the biggest advantages a HELOC has over a home equity loan. You don’t have to borrow up to your credit limit if you don’t have to, and that means that you can potentially end up paying less in interest than you would if you took out a loan.

During the Repayment Period, you Must Pay Back all the Money you Borrowed

Once the HELOC’s draw period is over, the repayment period begins. As you might suspect, during this period you have to repay all the money you borrowed. This period is usually longer than the draw period, and it’s similar to paying off a loan since you’ll be making monthly payments over a predetermined period of years.

Obviously, the amount of your monthly payment will be determined by your outstanding balance, so you’ll want to make sure you have enough money in your budget to make those payments. You’ll also want to try to make payments during the draw period to lower your monthly payments during the redraw period.

Get a HELOC at First Alliance Credit Union

HELOC payments might seem complicated at first, but they’re really not. Just remember that while you’ll be paying back the remainder of your balance during the repayment period, you can also make payments during your draw period to lower your balance. You also only have to pay interest on the money you borrow.

If you have a home improvement project you need to fund, apply for a HELOC loan at First Alliance today. Our loan advisors will work with you to get a HELOC with a competitive interest rate and a term that works for you.

Get started setting financial goals today!