What happens to my HELOC when I sell my house?

Asked by: Golda Ullrich  |  Last update: August 9, 2022
Score: 4.9/5 (35 votes)

No matter the type of payment plan, when you sell your home, you'll pay off the remaining principal of your HELOC or second mortgage along with your primary mortgage, using the funds paid by the buyer (home-sale proceeds).

Can you keep a HELOC after selling a house?

Sorry, but you will have to pay off the HELOC when you sell your primary residence. A HELOC is a "home equity line of credit," which is recorded as a mortgage (deed of trust) among the land records where your house is located. If you have a first mortgage, the HELOC is a second trust.

Should I pay off HELOC before selling?

HELOC and Resale

If you decide to sell your home, you will have to pay off your HELOC in full before you can close on the sale. The HELOC is tied directly to your house, and if you no longer own the home, you can no longer use it as loan collateral.

Can you transfer a HELOC to a new home?

Once you sell your current home, you can take the proceeds and pay down the home equity line — and still have it to use for up 10 years. You can pull the equity out of your current home with a home equity line of credit. This option would allow you to have a line of credit to use as you wish for the new home purchase.

Is there a penalty for closing a HELOC?

How Much Are Closing Costs for Home Equity Loans and HELOCs? The average closing costs on a home equity loan or HELOC will usually amount to 2% to 5% of the total loan amount or line of credit, accounting for all lender fees and third-party services.

HELOC - Why You Need This Before You Sell Your Home

32 related questions found

What does Dave Ramsey say about HELOC?

Dave Ramsey advises his followers to avoid home equity loans and HELOCs. Although it might seem like home equity loans might make sense if homeowners are trying to quickly pay down credit card debt in their quest to become debt-free, he still does not recommend home equity debt.

Can you payoff a HELOC early?

Yes, you can pay off a HELOC early. However, there are concerns to be aware of. There are two payment periods in a HELOC agreement: the draw period and the repayment period. The draw period is set by your lender and usually lasts about 10 years.

How do I get rid of a HELOC?

You can refinance a HELOC by refinancing into a new HELOC, using a home equity loan to pay off your HELOC, or refinancing into a new first mortgage. If you don't qualify to refinance, then loan modification may be an option.

Is HELOC a second mortgage?

HELOC. A home equity line of credit or HELOC is another type of second mortgage loan. Like a home equity loan, it's secured by the property but there are some differences in how the two work. A HELOC is a line of credit that you can draw against as needed for a set period of time, typically up to 10 years.

Does unused HELOC affect credit score?

Closing a HELOC decreases how much credit you have, which can hurt your overall credit score. However, if you have other credit lines besides a HELOC like credit cards, then closing it may have minimal effect on your credit score.

Do I need to tell my mortgage company if I sell my house?

Selling with a mortgage FAQs

Do I need to tell my mortgage company if I am selling my house? Definitely. You'll need to let them know and you'll also want their help to talk through the different options, unless you're using a separate advisor. Even so, they should be one of your first ports of call.

What happens if you sell your house and still owe money?

If the sale price of your home is less than the amount you still owe to your mortgage lender, this is called 'negative equity'. In these cases, all of the money from the home sale goes directly to the mortgage lender. You will then receive a bill for the remaining amount.

How long do I have to pay back HELOC?

How long do you have to repay a HELOC? HELOC funds are borrowed during a “draw period,” typically 10 years. Once the 10-year draw period ends, any outstanding balance will be converted into a principal-plus-interest loan for a 20-year repayment period.

Is it better to pay off mortgage or HELOC?

Since HELOCs sometimes have lower interest rates than mortgages, you could save money and potentially pay off your mortgage sooner. Even if the rates are similar, refinancing your first mortgage with a HELOC might still be the best choice for you.

What happens to a HELOC after 10 years?

Typically, a HELOC's draw period is between five and 10 years. Once the HELOC transitions into the repayment period, you aren't allowed to withdraw any more money, and your monthly payment will include principal and interest.

What are the disadvantages of a home equity line of credit?

Cons
  • Variable interest rates could increase in the future.
  • There may be minimum withdrawal requirements.
  • There is a set draw period.
  • Possible fees and closing costs.
  • You risk losing your house if you default.
  • The application process for a HELOC is longer and more complicated than that of a personal loan or credit card.

Can I open a HELOC and not use it?

A HELOC is convenient for many reasons: You can open it but not ever use it and just keep it there as an "emergency fund." The debt is sometimes tax-deductible, which is very convenient if you are looking to consolidate credit cards and other debt, which has a high-interest rate, and payments are not tax-deductible.

Should I convert my HELOC to a fixed rate?

If you're able to refinance your debt by converting your HELOC balance to a fixed-rate loan option with a longer term, up to the end of the repayment period, it'll give you more manageable monthly payments during the repayment period.

Is it worth refinancing a HELOC?

If the value of your home has increased, or you're looking for more favorable terms, now is a good time to look at refinancing your HELOC. But be careful: A new HELOC could increase the total amount of interest you pay over time, and it might make it tempting to draw more money down the line.

How are HELOCs paid back?

HELOC repayment

If you have a home equity line of credit (HELOC), repayment operates like a credit card — you draw from the line up to the line amount (just like the credit limit on your credit card). Typically, you're only required to make interest payments during the draw period, which tends to be 10 to 15 years.

What happens when HELOC matures?

Once your HELOC matures, the draw period of the loan expires and the entire balance at that point converts to a 10-year installment loan at prevailing home equity loan rates – which are higher than first mortgage rates. At this point, you can kiss that low interest-only payment goodbye.

What is the monthly payment on a $150 000 home equity loan?

For a $150,000, 30-year mortgage with a 4% rate, your basic monthly payment — meaning just principal and interest — should come to $716.12.

What is the monthly payment on a $100 000 home equity loan?

Loan payment example: on a $100,000 loan for 180 months at 5.79% interest rate, monthly payments would be $832.55.

Can I write a HELOC check to myself?

You can use these funds for anything you want—by making a transfer, writing a check, or using a debit card. Because you control how much of the line you use, a HELOC is a more flexible option than a loan. Lower up-front costs: HELOCs typically have lower up-front costs than home equity loans.

What happens to your mortgage when you sell your house and don't buy another?

If you're redeeming your mortgage (repaying the amount off in full) and not buying another property, the sale price of your property must be higher than the amount remaining on your mortgage loan. When you sell your home, the proceeds from the sale are used to pay off your existing mortgage loan.