Repaying a Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is possibly the most flexible borrowing option available to homeowners today. The key to success when using a HELOC is remembering that however you use it, the debt needs to be repaid. Failure to repay what you owe in interest and principal could result in the loss of your home. Because there are so many different ways to structure HELOC repayments, ask your banker for advice to help you find a plan that works for you and your budget.

Spend with the end in mind.

Your HELOC will come with a credit limit. Even if that limit is higher than what you need, try to only use it for specific, intended purposes. If you’re adding on a bathroom, set a reasonable project budget. If you’re paying for school, plan ahead for each semester’s tuition payments so you’ll know how much you’ll need to borrow and how much you’ll be paying back.

Explore flexible repayment plans.

With so many ways to use a HELOC, you’ll appreciate the many repayment plans that are designed to meet a variety of needs and circumstances.

• Interest-only: Many banks offer this option, and it keeps your monthly payments as low as possible while you are spending HELOC funds on a home remodeling project or when you need a little more spending room until your annual bonus pays out. Remember, don’t settle into the low, interest-only monthly payments—plan ahead and commit to a program to pay down your outstanding principal balance each month.
• Interest plus principal: At most banks you can set up either: 1) a fixed monthly payment (i.e., $300 per month) to pay your accrued monthly interest and a portion of principal, or 2) a monthly payment that would change each month which would pay the accrued monthly interest and a fixed amount of principal. At the very minimum, you’ll pay interest on what you’ve borrowed using your HELOC. As your income increases or you free up room in your budget, you can adjust how much you pay toward the remaining principal that was borrowed
• Fixed-rate payments: This budget-friendly plan for paying off HELOC debt locks in the interest rate on an amount you’ve borrowed then establishes a fixed monthly payment for paying it back. So, if you are paying college tuition, use the HELOC to pay for the fall semester then lock in a rate and set up monthly payments that will pay down the balance before the spring semester. The fixed interest rate typically will be larger than the variable rate on your HELOC.

Even though you generally have many years to pay off a HELOC, the more quickly you repay it, the less you’ll pay in interest. Plus, by freeing up your credit line by paying down your principal balance prudently you’ll have peace of mind knowing that it is there for you to use again whenever you need it and that you are not delaying the inevitable repayment of your balance.

Arrange for convenience at RBC Bank.

Having a relationship with RBC Bank makes it simple to apply for a HELOC and arrange for your monthly HELOC payments to be made. If you have an RBC Bank checking account, you can authorize automatic payments and may qualify for an interest rate discount for setting it up. If you use online banking to transfer money from checking to savings, you can do the same type of transfer to your HELOC. Transfer from checking to HELOC, savings to HELOC or a combination. If you’re on the road and remember a payment is due, our telephone payment system is available 24/7 at 1-877-RBC BANK (877-722-2265)