How Does Paying Back A HELOC Work?

Understand HELOC repayment, what happens after payoff, and key Texas regulations before borrowing against your home’s equity.

Using your home’s equity can be a smart way to borrow, and a Home Equity Line of Credit (HELOC) is one of the most flexible options available. Because HELOCs often come with lower interest rates than credit cards or personal loans, many homeowners turn to them for big expenses or financial flexibility.

But before tapping into your equity, it’s important to understand how repayment works. In this post, you’ll learn what to expect when paying back a HELOC, what happens after payoff, common timelines, and how repayment affects your credit score. If you live in Texas, be sure to note the key protections and rules that apply.

To get started, it’s helpful to know how lenders determine the amount you can borrow.

How Your Limit Is Decided

Prior to approving your HELOC, lenders will evaluate how much you can borrow. They’ll review factors like your combined loan-to-value (CLTV) ratio, credit score, and monthly income.

Here’s a Texas rule to keep in mind when it comes to HELOCs: no matter how high your income or credit score, Texas will only allow you to borrow 80% of your home’s appraised value.

For instance, if your home is worth $500,000, the total you can borrow is:

(80 / 100) x $500,000 = $400,000

If you still have an existing mortgage, that amount is subtracted from the total allowable debt to arrive at your maximum HELOC.

Say you have an outstanding mortgage balance of $200,000, your maximum equity would be:

$400,000 – $200,000 = $200,000

Understanding these figures not only tells you how much you can borrow but also helps you estimate your monthly repayment. That way, you can plan your finances accordingly.

With your HELOC approved and borrowing limit set, the next step is to understand the specifics of repayment.

How Does HELOC Repayment Work?

When you apply for a HELOC, the lender will determine your credit limit based on your home’s equity and other credit factors, making it a form of credit secured by your property. You’ll receive estimated costs and clear loan terms – including interest rate, draw period length, and repayment conditions – usually three business days before closing. It’s important to carefully review your loan agreement to ensure you know exactly what’s expected of you.

The Draw Period

During the draw period (typically 5-10 years), you can borrow funds as needed, up to your credit limit. Most lenders require minimum monthly payments on the amount you’ve withdrawn, which are usually interest-only. Paying interest only is a key feature of the draw period, and your minimum monthly payments may increase if your HELOC balance rises.

The Repayment Period

After the HELOC draw period ends, the entire HELOC enters the repayment phase, also known as the HELOC repayment period. Two major changes occur:

• You stop withdrawing. The account is in full payback mode, so you can no longer access funds from your credit line.
• Monthly payments increase. Expect your monthly repayment amount to rise during the repayment phase, since you’ll cover both principal and interest as part of your HELOC payments. The loan balance or outstanding balance at the end of the draw period determines your new payment structure.

Your repayment schedule depends on your balance at the end of the draw period and your loan terms. Repayment periods often last up to 20 years.

Other Details To Know

• Most HELOCs use a variable interest rate tied to the prime rate, so monthly payments can fluctuate. Some lenders may offer fixed-rate options during the repayment period.
• Certain agreements may include a balloon payment at the end, requiring the remaining balance to be paid in one lump sum.

Since repayment structures vary by lender, always review your loan documents closely so you know your timeline, payment requirements, and interest rate details.

What Happens When I Pay Off My HELOC?

Paying off your HELOC frees up your home equity again. Once your balance reaches zero, your account status changes and your credit utilization may improve. Knowing what to expect after you pay off the loan helps you avoid surprises and ensures your home’s title and credit record remain accurate.

Here is what happens when you fully repay your HELOC:

• Lien release or assignment. The lender provides a lien release (or assignment of lien), showing the debt is paid. Keep this document safe – you may need it to remove the lien from your home’s title if you plan to sell or refinance.
• Account status on the credit report. The HELOC is updated as “paid,” “closed,” or similar on your credit reports. Positive payment history can remain on your report for years, potentially boosting our credit score. Paying off your HELOC and reaching a zero balance can also improve your credit utilization ratio.
• HELOC remains open. Most HELOCs stay open after payoff unless you request closure. If you want to close your account, contact your lender to initiate the process.

After paying off your HELOC, make sure your lender provides paperwork confirming the lien release complies with state requirements. Keep copies of the release and your final statement – they may be needed if a future title search flags the old lien.

Does An Unused HELOC Affect Credit Score?

When you apply for a HELOC, the lender will do a hard credit inquiry. This can lower your score but the effect is temporary, lasting around six months. After that, your HELOC affects your credit score based on how you manage the account. Paying on time helps your score, while missed payments can hurt it.

What If You Don’t Use The HELOC?

Even unused, a HELOC is still reported to the credit bureaus as a revolving line of credit. This can be beneficial:

• Lower your credit utilization ratio: Credit scoring models favor lower balances compared to your total available credit. An unused HELOC increases your total credit limit, which can reduce your overall utilization and improve your score.
• Diversify your credit mix: Having a mix of credit types – credit cards, mortgages, and installment loans – can positively impact your score. Adding a HELOC demonstrates responsible handling of different types of credit.
• Lengthen average account history: Older accounts generally help your credit score. Keeping a HELOC open over time increases the average age of your credit accounts, which is viewed favorably by scoring models.

Potential Downsides

Some lenders charge annual or inactivity fees for an unused HELOC. You’ll need to decide whether the credit score benefits outweigh the cost.

It’s important to do your own research on how different lenders report HELOCs and how this may affect your credit score.

Should I Close My HELOC After Paying It Off?

There’s no one-size-fits-all answer but weighing the pros and cons can help you make the right decision.

Reasons To Keep Your HELOC Open

• You can access emergency funds without reapplying.
• The extra available credit can lower utilization and support your score.
• If the HELOC has a low or no maintenance fee, keeping it open costs little.
• If you think you may need funds again in the future, keeping your current HELOC open can be easier than applying for a new one later.

Reasons You Might Close Your HELOC

• You have no plans of borrowing against your home again.
• You want to eliminate costs, such as inactivity fees.
• The lender will reduce or freeze lines during stress periods, like a decline in home value.
• You’re selling your home and need to transfer a clear title to the buyer.

Closing a HELOC can simplify finances and provide peace of mind but remember that paying it off doesn’t automatically remove the lien. You’ll still need to process a lien release. And, if you plan to sell your home soon, a paid-off but open HELOC could complicate closing if the lender expects a payoff. Ask the lender whether a formal closure and lien release will be issued when you pay it off.

Some borrowers choose to pay off their HELOC early, before the end of the draw period, to avoid additional interest charges. Just be sure to check if there are any penalties or other implications for early repayment.

Bottom Line

• If you worry about overspending and have no need for emergency funds, close the HELOC and get written confirmation of lien release.
• If you value the backup liquidity and the account has no maintenance fee, consider leaving the HELOC open.

Get A HELOC Through A+ Federal Credit Union

A HELOC can be a smart tool when you use it for planned projects, debt consolidation, or major expenses. In Texas, the law provides strong protections, such as limiting borrowing to 80% of your home’s value and requiring a clear lien release once it is paid off. This makes HELOCs a great tool to tap into your home’s equity.

If you’re shopping around for a HELOC with the best terms and rates, A+ Federal Credit Union is your reliable partner. Our HELOCs come with several perks, including:

• Variable interest rates – as low as 6.740% APR*
• Flexible repayment options
• A minimum loan amount of $25,000

Whether you’re considering a HELOC or a home equity loan, we’re here to help. Our mortgage team will help you select the best loan product for your needs.

Contact A+FCU today, and take the first step toward turning your home equity into cash.

*APR=Annual Percentage Rate. As low as APR is for first-lien HELOC with a 5-year draw period and a 15-year repayment period. Based on a $50,000 loan amount with a 70% CLTV (combined loan-to-value), and credit score >=760. Rates and terms are for illustrative purposes only and are subject to change without notice.

Membership required. LTV = Loan to Value. Maximum loan amount of $250,000. HELOCs are a variable rate product. Programs, rates, terms, and conditions are subject to change without notice. Normal lending criteria apply. All loans subject to credit approval. Rates are subject to credit score, loan-to-value matrix adjustments, and normal credit underwriting factors. Additional terms available. Property must be located in Texas and primary owner-occupied single family residence. $495 processing fee for loans less than $40,000. $795 processing fee for loans $40,000 and above. Under Texas law, the combined loan-to-value (CLTV) cannot exceed 80% of your home’s value. NMLS #405608. Rate as of 9.18.2025.