Understanding Changes to Your Home Equity Account

Call 1-855-877-6661 and talk to one of our home equity specialists.

A home equity line of credit makes a specific amount of money available to you for a set period or term, which typically lasts for 10 – 20 years. During the term, you can use – or draw – the funds, as needed. When you reach the end of the draw period, you can no longer access additional funds, and repayment begins.

The 2 main types of home equity lines of credit are paid off differently:

Standard home equity line of credit

During the draw period, you may have made interest-only payments or principal-and-interest payments. You may have had a variable interest rate. When the repayment period begins, you’ll need to make principal-and-interest payments to repay your principal balance within a specific time frame. The variable interest rate may change to a fixed rate during the repayment period. Your monthly payments may increase substantially – especially if you made interest-only payments during the draw period – because you will now be paying back a portion of your principal along with interest with each payment.

Balloon home equity line of credit

During the draw period, you may have made interest-only payments and had a variable interest rate. Now that the term has ended, the outstanding balance is due in full, and a substantial lump-sum balloon payment may be required.

• If you’ve been making mostly interest-only payments and not many principal payments, you have not been reducing the amount you owe.
• If you’ve been paying down your outstanding balance, you may have reduced the amount of interest you paid over the term of the account, and that may also result in a smaller balloon payment at the loan’s final maturity.

The following chart shows how paying extra principal each month reduces the balance after 5 years and 10 years. On a 10-year, $10,000 loan, if you:

• Made interest-only payments, the principal balance remains the same through the term of the account.
• Paid an extra $25 a month toward the principal, after 10 years the final amount due is $7,300.
• Paid an extra $100 a month toward the principal, after 10 years the loan is paid in full.

Note: The chart shown is for illustrative purposes only and is not based on the actual terms of your account.

For a home equity line of credit, end of draw is the point at which you can no longer access funds. Most lines of credit have a 10-, 15-, or 20-year draw period and then move into the repayment period, when you’ll repay your outstanding balance with full principal-and-interest payments.

The interest rate may change from a variable rate during the draw period to a fixed rate during the repayment period. The combination may increase your monthly payments substantially, especially if you made interest-only payments during the draw period. With an interest-only plan, your principal balance is reduced only when you make voluntary principal payments during the interest-only period. Some home equity lines of credit feature a balloon payment, when you pay the outstanding balance (plus interest and any additional fees or charges) in one lump sum.

The chart below shows how much an interest-only payment during the draw period would be for different loan amounts, and how it increases when principal-and-interest payments begin.

For example, on a $50,000 outstanding balance, the interest-only payment at 4.25% would be $177 monthly, while the interest-and-principal payment at the adjusted rate of 5.85% would be $295. (Based on a 30-year-repayment plan.)

The chart shown is for illustrative purposes only and is not based on the actual terms of your account

For a balloon home equity line of credit, final maturity or end of term is when the outstanding balance becomes due in one lump sum. This amount may be substantial.

The sooner you start making principal-and-interest payments, the better, because it will help you when your account enters the repayment period or when you have to make a balloon payment. Pay particularly close attention to your home equity account at least 2 years before it enters end of draw (the point when you can no longer access funds).

No. We don’t offer extensions on home equity lines of credit at this time. However, we may have options available. Call 1-855-877-6661 to discuss.

If you can’t make the new monthly payments as scheduled, you may have options through our Home Equity Maturing Accounts Program. To learn more, call one of our home equity specialists at 1-855-877-6661. It’s important to contact us as soon as you realize you may have payment challenges. If you haven’t made other arrangements and don’t make the new monthly payments, you’ll be in default, and that can affect your credit rating and put your home at risk.

Start reviewing your options early. If you don’t make the balloon payment on your home equity line of credit, you’ll be in default, which could negatively affect your credit rating and put your home at risk. It’s important that you contact us as soon as you realize you can’t make the balloon payment. You may have options through our Home Equity Maturing Accounts Program. To learn more, call one of our home equity specialists at 1-855-877-6661.

You may have other options to repay your outstanding balance. Call a home equity specialist at 1-855-877-6661 to learn more.

The equity in your home is what’s available after subtracting what you owe on your mortgage, home equity financing, and any other outstanding liens from your home’s current market value.

For example, if your home is worth $200,000 and your mortgage balance is $120,000, you have $80,000 in total equity. When you borrow money for a home equity line of credit, the amount typically is capped at no more than 80% of your home’s value.

We may have options for home equity customers who are approaching the end of draw or final maturity and have little or no equity in the home. To learn more, call a home equity specialist at 1-855-877-6661.

For a payoff quote, call us at 1-855-877-6661.

Each person’s situation is unique, and lines of credit vary. Some of these options may not be available to you.

For home equity lines of credit at end of draw or end of term: 

• Use our Early Paydown Program^SM, which gives qualified borrowers the ability to convert your variable-rate home equity line of credit balance into a fixed rate and fixed term before the end of draw date. The monthly payments are designed to pay off the balance by the end of the new term. This program transfers the entire outstanding balance into its repayment phase early, and ends access to new home equity funds.
• Refinance to a new first mortgage with Wells Fargo, which lets you refinance your home equity line of credit into a new Wells Fargo home mortgage.

Considerations

• Refinancing may not be right for your situation. Talk with a home equity specialist to learn more.
• Different options may help you lower your interest rate, lower your monthly payment, or pay off your outstanding balance.
• If you’re experiencing financial challenges, you may qualify for a modification with new terms and a possible interest rate reduction.

Talk with a home equity specialist at 1-855-877-6661 for more information.