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Understanding Changes to Your Home Equity Account

Talk with us about the next phase of your home equity account

Make sure you’re prepared for any financial challenges before your home equity financing enters end of draw or end of term status. Our specialists are ready to help you understand your options.

Several changes will take place when your home equity account enters the repayment stage:

  • Your access to funds will end.
  • You may face higher monthly payments.
  • You may need to make a large, one-time payment.

Know how changes may affect your account. Call us at 1-855-877-6661 Monday through Friday, 7:00 am to 10:00 pm or Saturday, 9:30 am to 6:00 pm Central Time. Our home equity specialists will help you understand your options so you can make an informed decision.

If you have a home equity line of credit, you have been able to “draw” (or access) funds as needed, up to your credit limit, for a specific number of years. The years that you have been able to access funds is known as the draw period. If you have a home equity loan, a fixed amount was loaned to you for a set term. The term – for both the home equity line of credit and home equity loan – is the number of years before you need to repay the loan.

If you have:

  • A standard home equity line of credit, your access to funds will end when you reach the end of draw. You’ll enter the repayment period and your monthly payments will now include principal and interest. Depending on your balance at your maturity date, your payments may increase substantially, especially if you have been only paying interest.
  • A balloon home equity line of credit, your access to funds will end when you reach the end of the draw, and you will need to pay your outstanding balance in full, in what is known as a balloon payment.
  • A balloon home equity loan, you will need to pay your outstanding balance in full when you reach the end of the term

Understanding your home equity account

How do I know the type of home equity financing I have and which repayment plan I have?

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

What is a home equity line of credit?

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.

What is a home equity loan?

A home equity loan provides the full loan amount at the beginning of the loan term and requires you to repay your loan in full by the maturity date.

There are 2 main types of home equity loans:

Standard home equity loan

During your loan term, you made principal-and-interest payments, and at the end of the term, your loan is fully paid off.

Balloon home equity loan
During your loan term, you made required payments, which included interest and some of the principal. Now that the term has ended, the outstanding balance is due in full, and a substantial lump-sum payment may be required.

Why do principal-and-interest payments matter?

  • 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.Over time, paying extra principal each month reduces the outstanding balance faster.

Understanding the next phase of your home equity account

What does end of draw mean and what happens?

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

If you made interest-only payments during the draw period, during the repayment period your monthly payment may increase substantially when principal-and-interest payments begin.

What does final maturity or end of term mean and what happens?

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

How far in advance should I prepare for the end of access to the funds, or the end of my loan term?

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) or the end of the loan term.

Can I get an extension on my current contract or maturity date?

No. We don’t offer extensions on any home equity loans or home equity lines of credit at this time. However, if you would like to refinance your line of credit or if you are experiencing a financial hardship, we may have options available. Call 1-855-877-6661 to discuss the options available for you to consider.

Repaying your home equity line of credit or home equity loan

How do I refinance my home equity line of credit or loan?

You’ll need to complete an application to refinance your home equity account into a new home equity line of credit, a new home equity loan, or a new first mortgage. If your financing is nearing end of draw or final maturity, call 1-855-877-6661 to talk with a home equity specialist.

What if the new monthly payments during the repayment period are too high for me to manage?

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.

What if I can't make the scheduled balloon payment?

Start reviewing your options early. If you don’t make the balloon payment on your home equity line of credit or home equity loan, 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.

What happens if I can’t refinance my outstanding balance?

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

How can I determine how much equity I have in my home?

If the total of the amount you want to borrow and the amount you already owe on your home isn’t more than 85% of your home’s value, you may be able to access some of your home’s equity.The equity in your home is what’s available after subtracting what you owe on your mortgage, home equity line of credit or loan, and any other outstanding liens from your home’s 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 or loan, the amount typically is capped at no more than 80% of your home’s value.

What if I don’t have any equity in my home?

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.

How can I pay my line of credit or loan in full?

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

What are some options that I may have to pay off my line of credit or loan?

Each person’s situation is unique, and lines of credit and loan plans 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 ProgramSM, 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 home equity line of credit, which gives you ongoing access to available home equity credit with a new 10-year draw period.
  • Refinance to a new home equity loan, which gives you the stability of a fixed interest rate and term.
  • 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.

For home equity loans at final maturity:

  • Refinance to a new home equity line of credit, which gives you access to available home equity credit with a 10-year draw period to use when you need it.
  • Refinance to a new home equity loan, which gives you the stability of a fixed interest rate and term.
  • Refinance to a new first mortgage with Wells Fargo, which lets you refinance your home equity loan 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.
  • Refinancing to a new first mortgage that includes a home equity line of credit or home equity loan may carry additional costs.
  • 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.

       

Know your end of draw balance and end of term date

Knowing your account details can help you prepare for the end of your draw and final balloon payment. The information is on your monthly billing statement, or sign onto Wells Fargo Online® by:

  • Going to the Wells Fargo Online home page
  • Selecting the Account Services tab
  • Selecting Account Profile

Start preparing now

Talk with a home equity specialist at 1-855-877-6661, Monday – Friday, 7:00 am to 10:00 pm; Saturday, 9:30 am to 6:00 pm Central Time.

If you are a servicemember on active duty, prior to seeking a refinance of your existing mortgage loan, please consult with your legal advisor regarding the loss of any benefits you are entitled to under the Servicemembers Civil Relief Act or applicable state law.

Line of credit
A form of revolving credit secured by a borrower’s home. A borrower is approved for a specific credit limit and can draw on those funds up to the limit as needed during the draw period, making monthly payments as required according to the signed contract.

Loan
A form of closed-end credit secured by a borrower’s home. The borrower receives the full loan amount once, at the beginning of the loan term, and makes monthly payments as required according to the signed contract.


End of draw
For a home equity line of credit, end of draw is the point at which the draw period ends and the borrower can no longer access the funds. Most lines of credit have a 10-, or 15-, or 20-year draw period. Depending on the original contract, the borrower may be required to repay the outstanding balance with fully amortized monthly payments that include principal and interest or a single balloon payment.

Repayment period
For a standard home equity line of credit, the point at which a borrower must begin to make fully amortizing monthly payments, or principal-and-interest payments that will completely repay the outstanding balance during a certain period of time. If a borrower had been making interest-only payments, the monthly payments could increase substantially during the repayment period
Balloon payment
A large lump-sum payment due at the end of some types of home equity lines of credit or home equity loans.
End of term
For a balloon home equity line of credit or a balloon home equity loan, end of term is the point at which the outstanding balance becomes due in full.