Can you pay off a HELOC early? Prepayment penalties and more

Want to knock out your home equity line of credit (HELOC) debt early? You could be making a smart financial move. Early HELOC prepayments can save you thousands in interest costs and provide greater financial flexibility for the future. 

Though some lenders charge prepayment penalties, understanding your options can help you decide if you can pay off a HELOC early. Here’s everything you need to know about HELOC prepayments, including their benefits and how to avoid prepayment fees. Plus, learn how Better’s no-penalty HELOC offers flexible payoff options. 

How do HELOC payments and prepayments work?

A HELOC has two phases: the draw period and the repayment period. These periods dictate your monthly payment, which you can estimate using the Better HELOC calculator. Here’s a closer look at each one:

HELOC draw period

The draw period, usually lasting 5-10 years, is the first phase of the HELOC. During this time, you have access to your loan funds and can make withdrawals as needed. You only need to pay interest, so monthly payments stay low.

But can you repay a HELOC during the draw period? You can, and making extra payments now gives you the best of both worlds. You save on interest while keeping access to your line of credit if you need it later (as long as it's before the draw period ends). And while you don’t have to make principal payments right now, doing so can decrease your total interest costs.

HELOC repayment period

During repayment, loan fund access ends and monthly payments increase. You pay both interest and principal until full repayment. 

Making prepayments during this time can reduce your interest cost and shorten the loan term, keeping more cash in your pocket. Additionally, if you have a variable-rate HELOC, prepayments can reduce your exposure to future interest rate increases.

Prepayment options

The impact of making early HELOC payments depends on how much you’re paying off early and when you make your payments. 

Payment Option	Impact on Monthly Payments	Interest Savings	Best if you…
Minimum payments only	Lowest payment obligation	None	Prioritize cash flow flexibility
Partial prepayment during draw period	Slightly higher payments	Moderate	Want to balance interest savings and access to funds
Full prepayment during draw period	Eliminates monthly payments	Maximum	Have a temporary cash surplus but still want access to funds later
Partial prepayment during repayment period	Faster payoff, less total payments	Moderate	Want to reduce your total loan cost on a fixed budget
Full prepayment during repayment period	Eliminates monthly payments	Maximum savings	Want to fully eliminate debt

HELOC prepayment penalties

While some lenders allow prepayments, it could cost you. Prepayment penalties vary depending on the lender, terms of your loan agreement, and which period the payment is made. 

Here are just a few of the most common prepayment penalties that you may encounter:

Fee Type	Description
Early termination fee	Flat fee for closing HELOC before a specified period
Closing cost reimbursement	Repayment of closing costs that were originally waived
Third-party fees	Costs for title services, notary, wire transfer, etc.
Inactivity fee	Flat fee for an unused line of credit still open

To avoid surprises, take a look at your HELOC agreement or ask your lender which fees apply to you.

Can you avoid HELOC prepayment penalties?

It’s definitely possible to avoid prepayment penalties. Just shop for lenders that don’t charge any HELOC early payoff penalty to help reduce your costs. If you’re already stuck with a credit line with penalties, it doesn’t hurt to ask your lender to drop the fees. Or, refinance with another, penalty-free lender to avoid paying future fees.

Better offers borrowers a HELOC without prepayment penalties, regardless of your loan amount or when you make prepayments. Experience a fast, straightforward application process and get approved for a Better HELOC in as little as 3 minutes.

...in as little as 3 minutes – no credit impact

HELOC early payoff benefits

If your lender allows, paying off a HELOC early could provide several benefits, including:

— Less interest: Make early payments and watch your loan balance fall. A lower principal on your HELOC means less interest, and those savings can add up faster than you’d expect. 

— Lower DTI ratio: Lower payments mean a better debt-to-income (DTI) ratio, so you look extra appealing to borrowers when applying for future loans.

— Lower loan cost: Shorter loans with less interest lower total HELOC costs. If you intend to pay off your loan early, you could get an HELOC with a higher interest rate and no prepayment penalties. 

— Greater financial security: Paying off your HELOC early reduces debt faster and gives you more peace of mind. 

When to consider an early payment

So, when and how do you pay off a HELOC faster? It depends on the situation, but strategically time prepayments for maximum financial impact. For example, use financial windfalls from inheritances or tax refunds to reduce HELOC debt substantially. If you know your rate’s about to rise, pay down your balance beforehand to save significantly on future interest. Or, consider prepayment before retirement to enter your next life phase debt-free.

Better’s no-penalty policy maximizes HELOC flexibility, allowing strategic repayment timing that best suits you. 

...in as little as 3 minutes – no credit impact

Get the HELOC you deserve with Better

Understanding early HELOC payoff strategies can upgrade your financial game, eliminating debt faster while saving interest along the way.

Better offers homeowners home equity loan flexibility without prepayment penalties—regardless of your loan amount. Gain the freedom to manage your finances without worrying about early debt reduction costs.

Check out Better today to check your HELOC eligibility in minutes. Get the cash you need in just a few days.

...in as little as 3 minutes – no credit impact