HELOCs and the Monthly Payments
Once you have decided that a home equity line of credit
is the best type of second mortgage loan for your situation,
you may be confused about how much your monthly payment
will be. You need to discuss with your loan officer
in detail exactly how much you will be expected to pay
each month depending on how and when you utilize the
line of credit.
If you do not make a withdrawal, you are not required
to make any monthly payment at all. However, once you
utilize the line of credit, you may be required to pay
the interest on the amount you have withdrawn on a monthly
basis. Some lending institutions may not require that
you do this, but allowing the interest to accrue without
making payments can lead to a dangerous situation.
If you plan to make a “balloon payment”
at the end of the loan term, you need to know exactly
where that money is coming from. Do not depend on some
future stroke of luck, such as an inheritance from a
relative, to come at the last minute. Never let yourself
lose track of how much you owe and how you intend to
pay it back. The longer you wait to repay, the more
you will owe.
Using credit responsibly is especially important when
you choose a home equity line of credit (HELOC) for
your second mortgage. If, for example, you use the money
to pay off your credit card accounts but then continue
to use the cards to run up additional debt, you face
the scary situation of being burdened both with repaying
your HELOC loan and still having high interest, high
balance credit cards.