Q&A: Ins and outs of HELOCs

Dear Liz: We have a home equity line of credit through our credit union. I have been paying it down very aggressively and it will be paid off in two months. That is our only debt. I was considering leaving a small ($100) balance. It would cost $7.50 a year to have the loan available but we would have immediate access to $200,000 with no paperwork, etc. Your thoughts?

Answer: Contact your credit union and ask if it’s necessary to maintain a balance to keep the line of credit open, because typically that’s not the case.

You should know, however, that HELOCs typically have two phases: a five- to 10-year “draw” period, during which you can borrow and repay the line much as you would a credit card, followed by a repayment period of 10 to 20 years during which you pay down any amount still owed. You normally can’t draw out additional money during the repayment period.

If your HELOC is nearing its repayment phase, you can replace it with a new HELOC that you leave open and unused for emergencies. Closing costs often range from 2% to 5% of the loan amount, although some lenders discount those fees.