HELOC Payments Explained - Don't Use Long-Term!

HELOC Payments Explained! I've received a lot of questions lately on how HELOC payments work and why I'm not a fan of using them for long-term endeavors. The HELOC is a great tool, but if you aren't aware of how the payment structure differs from a traditional mortgage, you could find yourself in a bad situation!

I hope this was helpful and if you know someone who has a HELOC or would benefit from understanding how the payments on them work, I would appreciate a share! If you have other thoughts or we missed something, let us know in the comments below.
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Let's Connect:

[derricksmith]

The only HELOC video I've seen that spells out the payment process.
Thank you for this.. Most helpful!!!

[izzyrooney]

Only 2 minutes into the video but working at a bank where I primarily service Helocs and other loans… A LOT of people don’t realize or even read the contract and notice that they are only paying interest until their draw date is up. I’ve spoke to tons of people who simply can’t afford to pay anymore after their draw ends because they didn’t know they owed the whole principal at the end. HELOCS can be so beneficial when you use them correctly and carefully and know how the process works, sadly a lot of people don’t fall into that category and end up between and rock and a hard place.

[cmoss]

Nice explanation of HELOC’s - only correction I would suggest is at [1:50] when you said the interest is higher at the beginning “because banks want to get their money back right away.” It’s actually higher because that’s when the balance owed is higher. They’re actually getting “their money” (the principal) back slowly in the beginning. The more you borrow, the more you’re paying interest on. In the beginning the amount borrowed is the greatest and as the principal portion of each payment reduces the amount borrowed, the proportion of the interest to principal declines as so does the amount of interest on each payment.

[bbgdragon]

Thanks for explaining this!! Went through so many videos and this was the most concise and clear

[firefalcoln]

Great explainer video. It’s remarkable how simple this is and how scarcely it seems people are willing or able to explain this when they speak about HELOCs. I’ve heard that a HELOC is like a credit card, but as someone who always pays my total balance for my credit card and never had a balloon payment, saying it’s like a credit card never really helped me understand a HELOC very well.

It sounds like the strategy is to get a good deal and pay chunks over your minimum monthly payment from time to time so that the balloon payment at the end never arrives or isn’t very much when it comes due.

[privateprivate]

I’m reviewing HELOC paperwork today, with a 9.5% rate, to pay off back property taxes, for a house I’m inheriting, which is $22K + a $2K gas & electric bill. The HELOC is for $75. But I’m just looking to get out of my apartment. Not for a Pinterest house.

I could actually pay the entire amount in cash. But there may be unforeseen issues.

But, as you’re saying here, I would pay this off in 1 year (maybe 2). The only thing that scares me is possible recession and job loss.

[lanimaries]

I’m a visual learner so the whiteboard is a big help! Thanks for the great info 👍

[tameling]

Not all banks require you pay the entire balance at the end of the draw period. Some, like my institution, convert the remaining balance into a 15 or 30 year fixed rate loan. The rate is fixed at the interest rate in effect as of the date of the conversion.

[D-Harb]

Thanks for explaining. I've made 4 large payments on my HELOC and the balance hasn't moved. Now I know.

[davidgilbertson]

Hey Tyler! Glad I found your channel. Question: I recently closed on a 50k HELOC. Only $37, 500 was deposited into my account. The only thing I know thus far is the breakdown is $35, 000 +$2500 (closing cost) = $37, 500. I know I'll find out in the next couple of days why, but it's been eating at me this weekend why the whole amount wasn't deposited.

[kaseyc]

This is the best explanation on YT. Thank you!

[Everything.N.Between]

Appreciate the info! Looking at using the HELOC and this helped a lot 🙏🏾

[johnyracercat]

The bank I bank at does 10-year interest only, followed by another 10 years pay down.

[vermoidvermoid]

Typically property values increase overtime
In a span of say 10 yr when making those interest only payments on the heloc say the property has increased by 50% ( it could be 100% also)
So by the time the 10 yr period comes to an end and you r suppose to make the ballon payment. Then at that time you can opt for cash out refi and pay the heloc and still have the property
So this way heloc can be a long term tool also. Thoughts??

[robhtp]

Thank you for your insights and knowledge. Can you explain or breakdown how and why OTHERS are promoting being your own bank and depositing all your paychecks into you HELOC and why this is good or bad or WHAT THEY'RE NOT TELLING YOU?

[thejeajoseph]

This was super helpful. Thank you for taking the time to explain it. I am still confused on a couple issues surrounding payments and wonder if you (or anyone else can help). I've heard HELOC's described like they're essentially credit cards, but my understanding is that with HELOC's there is a minimum monthly payment regardless of whether you're carrying a balance or not, is that true? If so, is the minimum monthly payment during the draw period based on a percentage of the loan? Can you close a HELOC out anytime you want and if so are there early termination fees associated with them? Finally, I'm thinking of using a HELOC for purchasing investment property but think it could take months (even up to a year to find a property). In that case is it worth paying the minimum monthly payment just to have access to a HELOC?

[tylerlucius]

Thank you for laying this out! I’m keeping this in mind for when I apply for sure

[puppetsnob]

So the interest is every month... in order for the payment to count as principal during the month, you have to pay more on top of that interest?

[vtecaccord]

So what are the benefits of using a HELOC for Renovations. We unfortunately have some renovations that came up and are looking at this as a possible option for our house.

[christineyoung]

I took out HELOC with principal and interest fix rate.