What are the smartest ways to pay off a HELOC?

Having a clear payoff strategy is key to your HELOC borrowing success. Getty Images/iStockphoto

Your home doesn't just have to function as the place where you live, eat and sleep. Increasingly, for many Americans, it can also be a valuable financing source. Thanks to a spike in home prices in recent years, the average home equity level currently stands at $313,000 per home. That's a large amount of money to be used in any number of ways. And with a home equity line of credit (HELOC), specifically, homeowners with good credit can secure an interest rate lower than what's available with a home equity loan, personal loan or credit card right now. This makes a HELOC one of the cheapest ways to borrow money as of early May 2025.

But securing the funds is only half of the equation. Paying them back is equally important, as the home in question serves as collateral here and homeowners could lose it to the lender if they fail to make repayments as agreed upon. With a HELOC, which functions as a revolving line of credit, interest-only payments will be mandated during the initial draw period (up to 10 years), before full, outstanding payments have to be made in the repayment period. 

In today's cooler home equity interest rate climate, however, what are the smartest ways to pay it off? Below, we'll examine three ways that current HELOC borrowers (and those considering one) should know.

Start by seeing how much equity you could borrow with a HELOC here.

What are the smartest ways to pay off a HELOC?

There is no universal, smart way to pay off a HELOC that will apply to every borrower. Instead, HELOC users should consider these three ways to determine which is applicable to them:

Take advantage of the interest-only payment period

Just because you're only required to make interest-only payments during the draw period doesn't mean you should, particularly now. With HELOC interest rates down more than two full percentage points since September 2024, payments here are considerably cheaper than they were at the same time last year. Or in 2023. So utilize this reduction in rates to your advantage by paying more than just interest. Not only will this result in your HELOC being paid off early, but it could also protect you against any future rate volatility that could quickly make your monthly payments arduous, as HELOCs have variable rates that adjust monthly for borrowers.

See what HELOC rate you'd qualify for now.

Monitor the interest rate climate

Because rates on HELOCs are constantly evolving, then, it makes sense to monitor the interest rate climate for opportunities to make larger payments. For example, with an average rate of just 7.99% now, homeowners who can afford it will be better served by making larger monthly payments during their draw period. But, if the average rate is closer to 10%, as it was in 2024, this would be a less advantageous pay-off approach. So monitor the interest rate climate for both opportunities to pay more and for the time to just make the minimum interest-only payment.

Use it for select home repairs and renovations

This approach will need to be done strategically but it can save you both time and money if done correctly. Interest charges on a HELOC, after all, can be tax-deductible if used for eligible home repairs and renovations. While this tax deduction won't do anything to offset your monthly costs, it will help reduce your tax bill and boost your refund for the years in which the HELOC was used. Not only will this make concerns over the variable rate less of an issue when you know you'll simply deduct it from your taxes, but you can then use the elevated refund to pay down (or off) the HELOC. But this will only qualify for select projects, so use it judiciously. And be sure to understand any applicable early HELOC payment penalties, which can vary from lender to lender.

The bottom line

The "smartest" way to pay off a HELOC will ultimately be what's most affordable for your budget, both on a monthly and long-term basis. By considering these approaches carefully and by utilizing a lower rate climate to your benefit, you can more easily pay off your HELOC, perhaps in an expedited way. Still, with your home as collateral in these borrowing exchanges, a repayment plan will need to be parsed carefully. So consider speaking to a lending expert or home equity lender who can answer your questions and help you build a personalized repayment strategy.

Learn more about your HELOC options here.

Matt Richardson

Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.