Can You Pay Off a HELOC During the Draw Period?

A home equity line of credit (HELOC) gives homeowners an open-ended line from which to borrow as needed. But you can only withdraw funds from a HELOC during its draw period, often the first 10 years the account is open. 

You may only need to pay interest on the borrowed amount during this period. After the draw period ends, the HELOC enters a repayment period. You can no longer withdraw funds and must begin making payments on both principal and interest. 

You can repay more than just the interest during the draw period if the lender allows it. This can save you money in interest and reinstate the line of credit so you can borrow more later. Here’s a look at how this works and what to expect.

Can you pay off a HELOC early? 

With a traditional HELOC repayment, you would draw on the funds as needed during your draw period. With each draw, interest starts to accrue on the outstanding balance. Based on the balance and interest rate, you’ll start making interest-only payments until the draw period ends. 

At that time, you no longer have access to your credit line. Repayment could start in one of two ways.

1. You may start making monthly payments on the principal and interest—this typically occurs when the HELOC is converted to a home equity loan, depending on the loan provider. 
2. Or, you may owe your entire outstanding balance at once—called a balloon payment. 

Can you pay off a HELOC during the draw period? Depending on the terms of your HELOC agreement, it is possible to pay off your balance early. However, it’s important to understand how that works and what potential fees to watch for. 

Can you repay part of your HELOC during the draw period?

Repaying just part of your HELOC during the draw period is completely fine. Anytime you repay part of your principal, your balance drops, and you accrue less interest. On top of that, your credit line is replenished. You have a larger amount of credit available to draw on later.

• Say your HELOC allows you to borrow up to $50,000. 
• You borrow $25,000. 
• Six months later, you get a large tax refund and pay off $5,000 of your outstanding balance. Now, you only have a $20,000 balance accruing interest. 
• And, instead of having $25,000 available to draw, you now have access to $30,000. 

Can you repay your HELOC in full during the draw period?

Paying off your HELOC in full before the draw period closes can save you a lot of money in interest. However, not all lenders handle this process in the same way. Some may not allow for a full repayment, while others may charge a prepayment penalty.

Others may allow you to pay off your balance in full without any charges. Check your HELOC terms to see if there are any financial consequences. If you’re still in the lender comparison stage, consider prioritizing those that allow penalty-free early repayment.

What lenders will let you repay a HELOC during the draw period?

Many lenders offer flexible early repayment options. Here are various banks, credit unions, and online lenders providing HELOCs with some type of early repayment available. 

HELOC lender	Early repayment possible?
Alliant Credit Union	Yes
Aven	Yes
Bank of America	Yes (Fee for closing account within 36 months)
BMO	Yes (Fee for closing account within 36 months)
Bethpage	Yes (But closing costs must be repaid when closing account within 36 months)
Citizens Bank	Yes
Figure	Yes
Flagstar Bank	Yes (Fee for closing account within 36 months)
Keybank	Yes
New American Funding	Yes
PenFed	Yes
Prosper	Yes
TD Bank	Yes (Fee for closing account within 24 months)
Third Federal	Yes
Truist	Yes (Fee for closing account within 36 months)
Utah Community Credit Union	Yes (Closing costs must be repaid when closing account within 24 months)
Valley National Bank	Yes (Closing costs must be repaid when closing account within 36 months)

Do lenders charge a fee to repay my HELOC during the draw period? 

Your lender may let you pay off your HELOC balance early, but many will assess fees.

The most common is an early repayment penalty, and it’s standard if you pay off and close out a HELOC within the first few years of opening the account. The details vary by lender, but this penalty often applies during the first two to three years.

An early prepayment penalty may be a flat rate or a percentage of the total line of credit, depending on the lender. The fee can also change over time. As the draw period progresses, the penalty may decrease. 

Be sure to read your fine print for the specifics, but here are examples we found in our research:

• A $450 fee if you pay off and close your HELOC within the first three years.
• A requirement to repay your lender for any HELOC closing costs is covered if you close out your HELOC in the first 36 months. 
• A penalty of 1% of your original credit line if you close your account within 30 months of opening it—$500 maximum. 

In truth, this fee is less of a “prepayment penalty” in most cases and more of an “early account closure” fee. Most HELOC lenders won’t penalize you for repaying borrowed funds during the draw period. After all, if you repay the principal balance, you’re clearing your line of credit for additional borrowing. 

HELOC lenders may cover some or all the fees in originating your line of credit, including closing costs, credit checks, application fees, and appraisals. This fee helps recoup costs if you close the account early.

Ask the expert

Kyle Ryan

CFP®

The decision to pay off a HELOC vs. keep it open depends on quite a few different factors: First, what is your ability to get a new line of credit if desired? If you likely can’t get a new line of credit, it may behoove you to keep it open. This also goes back to the lender and whether or not it allows full payment of a balance without closing the HELOC. Second, what is the going interest rate on the HELOC, and what source of funds would be used to pay it off? Is there enough liquidity to do so? If you pay off your balance and need access to cash again, you can tap back into the HELOC (if your lender allows it). Finally, you should always have an emergency fund available. A HELOC is a great way to have low-cost access to money if needed. Therefore, we often recommend keeping the line of credit open as long as it is not cost-prohibitive.

Can my lender close my HELOC if I pay it off during the draw period?

Lenders can close out a line of credit at any time for reasons laid out in the Truth in Lending Act. But even if you pay off your HELOC balance during the draw period, your lender is unlikely to close the account without your approval or a direct request. 

A HELOC is, by design, an open-ended line of credit that you can pull from as needed at any point during the draw period. Whether you withdraw the entire amount in month one or never need to touch a penny is up to you. However, outstanding HELOCs represent a potential risk to lenders, so a lender may opt to freeze or close certain lines of credit to protect itself. 

The lender may close the account without your approval if you aren’t using your HELOC and have a $0 balance. An account closure is more likely if your home value has significantly declined. In this scenario, the lender could either freeze or close the account, or lower your credit limit. 

Your HELOC agreement may outline the terms and conditions of account closure for more specific details. 

Is it cheaper to repay my HELOC during the draw period?

When repaying debt, a rule of thumb is: The sooner you can clear out the balance, the less you’ll accrue in interest. So it’s often cheaper to repay your HELOC during the draw period than to wait for the repayment period.

Paying off your balance limits the interest that can accrue. Having a variable interest rate can also help ensure rates don’t rise before you tackle the debt, although the opposite can also be true—rates could rise before you can pay off your debt.

When would it make sense to wait to repay my HELOC

Of course, it can make more sense to wait in certain situations depending on whether a prepayment penalty is more expensive than your accruing interest. Let’s look at some scenarios to see when it would make sense to repay and when it would be better to wait until that penalty period ends.

Say your HELOC balance is $40,000 with a 9.25% APR. Interest-only payments would amount to $308.33 per month. Compared to typical early account closure fees, it generally makes sense to pay off your balance whenever you can. 

As you can see in the table below, the break-even point between interest payments and penalty fees ranges from just one to six months. 

Penalty type (within first 3 years)	Total fee	Interest break-even point
$450 flat fee	$450	1.5 months
1% of credit line amount	$400	1.3 months
Repayment of closing costs	$2,000	6.6 months

Since early account closure fees usually apply between two and three years, it will likely make financial sense to pay off your balance as soon as possible. 

Another option is to keep a small outstanding balance on your HELOC to help ensure your lender doesn’t close it due to inactivity—but be sure to check with the lender before making this decision. 

One item of note is that as long as you keep your HELOC open, some lenders charge an annual HELOC fee, which is about $100. 

Should I pay other debt before I pay off my HELOC during the draw period?

If you’re like most consumers, your HELOC balance isn’t the only debt you carry. So if you have extra cash during your draw period, does it ever make sense to pay off those debts before tackling your HELOC balance? It depends.

Ask the expert

Kyle Ryan

CFP®

Each of these scenarios and plenty more are situational. What if I have student loans? Chances are those interest rates are lower than my HELOC rate, but I wouldn’t want to pay that off first. It really depends on the balance and remaining limit on your HELOC, as well as other debts you have and the cash flow to handle them.

If …	Pay off your HELOC first?
You’re selling your home	✅ You won’t have a choice if the HELOC is tied to the home you’re selling.
Your job may have layoffs	✅
Property values in your neighborhood are decreasing	✅
Variable interest rates start to rise	✅ (unless your other variable financing rates are rising more quickly)
Your credit cards are maxed out	❌ (or consider a 0% balance transfer for credit cards)
You want to improve your credit by lowering credit card balances	❌ (although closing account after paying them off can have an opposite effect)

You’ll often want to tackle your highest-interest debt first if you’re going to pay the lowest amount in interest. Because the equity in your home secures HELOCs, they can have lower interest rates than unsecured debts, such as credit cards or student loans. In that case, you may be wise to focus on higher balances, depending on your cash flow.

On the other hand, if you’ve maxed out your limit, you can’t use that line as a financial safety net. Paying off that balance—versus paying off an auto or student loan—can open up your line of credit and give you more flexibility.

Your real estate situation also impacts whether or not you should pay off your HELOC early. If you plan on selling your home, you may need to pay it off. You can’t keep the HELOC if your property does not secure it. Make extra payments if your anticipated sales prices and fees won’t cover your mortgage and HELOC balances. Also, remember that your HELOC can be frozen or closed if property values drop. If you notice this happening in your area, it’s time to prioritize these payments. If you have additional questions, check out our article on how draw periods work.