A home equity line of credit, or HELOC, gives homeowners access to a revolving credit line based on the equity in their home. HELOCs are popular because they offer flexible borrowing with interest-only payments during the draw period. However, many homeowners are caught off guard when their HELOC resets and moves into the repayment phase. This change can bring higher monthly payments and financial stress if you’re not prepared.
The HELOC reset marks the end of the draw period. During the draw phase, which typically lasts 5 to 10 years, borrowers can withdraw funds as needed, often with a variable interest rate. When the draw period ends, the repayment phase begins. At this point, you can no longer borrow money, and you must start repaying both principal and interest. For many borrowers, this shift can be a financial shock—especially if their HELOC balance is high or their income has changed since the loan was approved.
Understanding how your line of credit HELOC works is critical to managing your finances when this reset happens. Many people focus on low introductory rates and convenient access to cash without fully understanding how repayment will affect their budget down the line.
When you open a home equity line of credit, you’re essentially borrowing against the value of your home. A lender approves you for a credit limit, which is often based on a percentage of your home’s value minus your current mortgage balance. This loan structure gives you access to funds during the draw period, when you can borrow and repay repeatedly, like with a credit card.
A HELOC usually has a variable interest rate, which means your rate—and your monthly payment—can change. The interest rate is often tied to the prime rate, which is published by sources like the Wall Street Journal & Bankrate, and reflects the current lending climate. While some lenders offer a rate discount at the beginning, your payments may rise sharply over time.
Once the repayment phase begins, you must repay the outstanding balance over the remaining term, usually 10 to 20 years. If you took out a large amount or your rate increased significantly, the resulting monthly payments could be much higher than you’re used to.
It’s important to distinguish a HELOC from a home equity loan. A home equity loan provides a lump sum of money with a fixed interest rate and predictable monthly payments. It’s ideal for people who know exactly how much they need to borrow and want to lock in their rate.
By contrast, a home equity line of credit offers more flexibility during the draw period, with the option to borrow, repay, and borrow again. However, it comes with more risk, especially if you’re not prepared for the payment increase when the draw period ends.
Many homeowners are unaware that their HELOC is subject to a reset. They may not know what their new payment will be, what the remaining repayment period looks like, or how changes to their credit history or income might affect their ability to refinance. That’s why it’s so important to review your HELOC documents and talk to a HUD-certified housing counselor if you’re unsure about your next steps.
While a HELOC offers convenient access to funds, it’s not free money. Just like any other loan, a HELOC comes with closing costs and application fees. These fees can vary depending on your lender and location but typically include:
Application fees are sometimes waived during promotional periods, but it’s important to read the fine print. If your HELOC is nearing the reset point, some lenders may offer refinancing options with lower application fees to help you manage the transition.
Many homeowners use HELOCs for debt consolidation. If you’re carrying high-interest credit card balances, it's tempting to use a HELOC to consolidate debt and reduce your monthly payments. But once the draw period ends, you will face a repayment schedule that strains your finances. That’s why it’s critical to calculate your future monthly obligations before using a HELOC for debt consolidation.
Also, be aware that if you miss payments or fall behind during the repayment phase, you risk losing your home. A HELOC is a secured loan, meaning it’s backed by your property. If you fail to repay, foreclosure is a real possibility. That’s why consolidating debt with a HELOC is not something we recommend as debt relief experts.
A better option than consolidating debt with any kind of new borrowing is to consolidate your current debt payments through the use of a Debt Management Plan. This is a true deb reduction strategy as it doesn't involve taking on any new debts.
If your HELOC is approaching the reset point, now is the time to act. Here are a few steps to prepare:
Remember, the sooner you prepare, the more control you’ll have over your finances. Waiting until the repayment phase starts could limit your options and increase your financial burden.
If you’re facing a HELOC reset, switching to a fixed interest rate could help stabilize your monthly payments. Many borrowers don’t realize that their line of credit HELOC can often be converted into a fixed rate loan, depending on the lender’s policies. This can be a game-changer during the repayment period when payments begin to rise.
Variable rates are tied to benchmarks like the prime rate, which fluctuates with market conditions. That means your monthly payment might go up unexpectedly—even if your balance remains the same. Fixed interest rates, on the other hand, remain constant throughout the life of the loan. By converting part or all of your HELOC to a fixed rate, you protect yourself from sudden rate hikes.
If your lender allows it, locking in a fixed rate can offer peace of mind and make budgeting easier. This is especially helpful if you’re managing other expenses like home improvements, credit cards, or personal loans.
The draw period is the most flexible phase of a HELOC, but it can also create long-term problems if you’re not careful. During this phase, you may be tempted to borrow frequently because of the low payments and revolving credit line. Many borrowers only pay the interest during this time, leaving the principal untouched.
While the draw period offers convenient access to funds, overuse can lead to financial strain later. If you spend up to your credit limit without a repayment plan, you’ll face steep monthly payments once the repayment phase begins.
To avoid this problem:
By treating your HELOC like a short-term tool—not long-term debt—you’ll have an easier time managing the transition to repayment.
One often overlooked cost of a HELOC is the annual fee. Some lenders charge this fee to maintain the line of credit, whether or not you borrow money. This fee is in addition to interest charges and any closing costs or application fees you already paid.
Make sure to review your HELOC terms to identify any annual fees, inactivity charges, or penalties. These fees can add up quickly, especially if you’re already facing high monthly payments after the reset. Consider whether refinancing or consolidating your debt into a different loan product might save you money over time.
You may also face costs for:
Being aware of these charges now will help you make informed decisions before your HELOC resets.
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It may seem like a good idea to use a home equity line of credit to consolidate credit card debt, but this strategy comes with serious risks—and it’s one we do not recommend. A HELOC is secured by your home, which means if you fall behind on payments, you could lose your house. Transferring unsecured debt like credit cards into a secured loan creates unnecessary danger, especially if you’re already struggling financially.
Debt consolidation with a HELOC can also backfire in another way: it often frees up your old credit cards, tempting you to use them again. Without a clear and enforced repayment strategy, you may end up deeper in debt than when you started. What looks like relief in the short term can lead to long-term financial harm.
Instead of using a HELOC to pay off other debts, consider safer and more sustainable solutions:
If your HELOC is approaching the repayment phase and you still carry a high balance, the best course of action is to seek professional guidance. A HUD-certified housing counselor can walk you through your options and help you avoid high-risk solutions that may jeopardize your home or financial future.
Your ability to manage a HELOC reset—or refinance your loan—depends on your credit history. A strong credit score will help you qualify for better rates and more flexible repayment terms. But if your credit history includes missed payments, high credit utilization, or recent delinquencies, your refinancing options may be limited.
Before your HELOC resets, review your credit reports from all three major bureaus: Equifax, Experian, and TransUnion. Look for errors, outdated information, or signs of identity theft. You’re entitled to one free credit report per year from each bureau via AnnualCreditReport.com, a government-authorized source.
Tips to improve your credit before a HELOC reset:
Improving your credit history now could mean the difference between qualifying for a fixed interest rate refinance or being stuck with an unaffordable repayment schedule.
If you decide to refinance your HELOC before the reset, be aware of the application fees involved. Even if you’re approved for a new loan with better terms, you may need to pay:
These costs can range from a few hundred to several thousand dollars. Be sure to compare offers from multiple lenders and ask about fee waivers or promotions. Some lenders will waive application fees for borrowers with strong credit or those willing to set up automatic payments from a checking account.
A reputable lender or nonprofit housing counselor can help you calculate whether the savings from refinancing outweigh the upfront costs. Always ask for a full disclosure of fees before signing any new loan agreement.
One of the main reasons homeowners choose a home equity line of credit is the convenient access to funds. A HELOC can be used for home improvements, emergency expenses, education, or even medical bills. You can use only what you need and repay over time, making it more flexible than a lump-sum loan.
But that convenience can come at a cost. If you use your HELOC as a safety net without a clear repayment strategy, the reset phase can lead to financial strain. That’s why planning ahead is essential. Treating your HELOC like a regular loan with defined repayment goals—even during the draw period—will help you avoid financial hardship later.
To maintain convenient access to credit without long-term risk:
If your draw period is ending and you still rely on your HELOC for monthly expenses, it may be time to reassess your budget and explore other financial tools.
One of the most popular uses of a HELOC is for home improvement projects. Whether you’re renovating a kitchen, updating a bathroom, or replacing the roof, a HELOC can help cover the cost with lower interest rates than personal loans or credit cards.
If your renovation is large in scale, be cautious not to exceed your credit limit. Also remember that if your HELOC resets before your project is complete, your payments could rise and create cash flow problems.
Before starting a major home improvement:
Careful planning ensures that your investment in home improvement doesn’t turn into a financial burden once your HELOC moves into the repayment phase.
Read about Easy Renovations to Help Increase the Resale Value of Your Home.
If you’re still in the early stages and considering a HELOC for the first time, now is the best time to plan ahead for a future reset. When applying:
Use online tools to estimate how different repayment scenarios would affect your monthly payments. Make sure to account for future changes in income, lifestyle, or home value.
For the most informed decision, read lender disclosures carefully, and don’t hesitate to seek help from a qualified credit advisor.
Before borrowing from a HELOC—or refinancing to manage the reset—check your debt-to-income (DTI) ratio. This metric compares your total monthly debt payments to your gross income. A high DTI ratio can hurt your chances of refinancing or converting your HELOC to a more affordable option.
Lenders generally prefer a DTI below 43%, though lower is better. If your ratio is too high:
Understanding your debt-to-income ratio now will help you qualify for better terms when applying for any kind of refinancing or second loan.
If you’re worried about your HELOC reset and feel overwhelmed by the repayment terms, it’s a good idea to talk to a HUD-certified housing counselor. Nonprofit counselors can help you:
The most important advice for managing a HELOC reset is simple: don’t wait. The earlier you act, the more options you’ll have. Whether that means refinancing to a fixed rate, consolidating your debt, or creating a strict repayment plan, your financial well-being depends on your ability to prepare.
You should also:
Being proactive can help you avoid falling behind once your repayment phase begins.
You don’t have to face your HELOC reset alone. A counselor from Credit.org can offer free support and help you avoid foreclosure. Getting expert advice early can make all the difference, especially if your financial situation has changed since you first took out your home equity line of credit.
