heloc minimum draw?

Question

Hello all.I have recently started asking around about helocs rates, terms, and how they work. I was under the impression it was much like a credit card you have interest only payments on the balance you carry. Today however I was told there is a minimum draw amount. I came across one older post that stated this is essentially to make the line of credit worth the lenders time. Has anyone moved forward with a heloc that had a minimum draw? And if so were you able to soon pay off this draw amount instead of constantly making interest only payments?

Paul Defngin · Answer

@James Conner, it depends. Most HELOC lenders are commonly doing a percentage of the outstanding balance. For example, some charges  1.00 - 1.50% of the outstanding balance to arrive at your payment. It's not a terrible thing because at least it forces you to pay down the principal balance a little bit. I know when I had an interest-only HELOC at one point, it felt that no matter how much I was paying towards the balance, it never seemed to go down. So, I just paid the full thing off. I have another HELOC now and it is interest-only still but I try to be very selective of when to use it, especially, now that Prime Rate today is 8.00%.  That said, call some Credit Unions in your area. Some may still offer them.  Parsons FCU in California and Virginia still do them but I don't know if their footprint is where you are located. Tower FCU used to have them. That's who I had my prior HELOC with before but I don't know now. They lend Nationwide. Bank of America, I believe still offers Interest Only.

If you do the interest only option, try to make frequent weekly or bi-weekly payments as your interests is calculated daily and is based on your outstanding balance.

Good luck.