HELOC repayment happens in two phases: a draw period when you borrow money, and a repayment period when you pay it back

During the draw period—typically 5 to 10 years—you can borrow against your credit line whenever you need it. You make minimum payments on what you've actually borrowed, not on the full credit limit. Once the draw period ends, the repayment period begins, usually lasting 10 to 20 years. At that point you can no longer borrow, and your payments jump significantly because you're now paying down the entire balance you owe.

The payment structure changes between these two phases, and many homeowners are surprised by how much their payment increases when the draw period ends. Understanding what happens at each stage helps you plan your budget and avoid payment shock.

Key Takeaways

  • During the draw period, you pay interest only on money you've actually borrowed, and you can borrow more whenever you need it.
  • When the draw period ends, you stop borrowing and start paying down the full balance over the repayment period, which causes your monthly payment to rise sharply.
  • Some HELOCs let you convert to a fixed rate during the draw period, locking in your rate before repayment begins.
  • If you can't afford the payment jump at the end of the draw period, you can refinance the HELOC into a home equity loan or a new mortgage.
  • Interest rates on HELOCs are variable, so your payment can change even during the draw period if the prime rate moves.

What happens during the draw period

In the draw period, you have access to a credit line—say $100,000—but you only pay interest on what you use. If you borrow $30,000 and leave $70,000 untouched, your payment is based on that $30,000. You can write checks, use a debit card, or request transfers to access the money, and you can borrow again as you pay down the balance.

Most lenders require only interest-only payments during the draw period, though some let you pay principal too if you want to. An interest-only payment on $30,000 at 8% annual interest is roughly $200 per month. This low payment is why HELOCs feel manageable early on—but it's also why the payment shock at the end of the draw period catches people off guard.

Because HELOC rates are variable, tied to the prime rate, your payment can change monthly or quarterly depending on your lender's terms. If rates rise, your interest-only payment rises with it. If rates fall, your payment drops. This unpredictability is one reason some homeowners convert to a fixed rate partway through the draw period.

What changes when the draw period ends

On the day the draw period ends, two things happen at once: you can no longer borrow, and your payment structure flips. Instead of paying interest only on borrowed funds, you now pay principal and interest on the full balance over the remaining repayment period. That $30,000 balance might now require a $300 to $400 monthly payment, depending on the interest rate and how many years remain.

If you've borrowed more over time—say you've drawn $60,000 total—your payment is based on that full $60,000. The jump can be 50% to 100% higher than what you were paying before, and it stays that high for the entire repayment period. Some homeowners discover they can't afford the new payment and face difficult choices: refinance, sell, or default.

The exact payment depends on three factors: how much you've borrowed, the current interest rate (still variable unless you locked it in), and the length of the repayment period. A lender can calculate this for you before you sign, so you can decide whether the future payment is manageable.

Interest-only versus principal-and-interest payments

During the draw period, most HELOCs require interest-only payments. You're paying the lender's cost of lending you money, but you're not reducing what you owe. This keeps payments low but means your debt doesn't shrink unless you choose to pay extra.

Some lenders offer the option to pay principal during the draw period—paying down the balance voluntarily. This reduces the amount you'll owe when repayment begins and lowers your future payment. If you can afford it, paying principal early is usually the smarter move, because it saves you interest over the life of the loan.

Once the repayment period starts, you have no choice: every payment includes both principal and interest. The payment is calculated so that by the end of the repayment period, the balance reaches zero. If you miss payments or pay only interest during repayment, you won't pay off the debt on time.

How variable rates affect your payments

HELOC rates are almost always variable, meaning they move with the prime rate. Your rate is typically the prime rate plus a margin set by your lender—for example, prime plus 1%. When the Federal Reserve raises rates, the prime rate rises, and your HELOC rate rises with it. Your payment goes up even though you haven't borrowed more money.

During the draw period, a rate increase means your interest-only payment increases. During repayment, a rate increase means your principal-and-interest payment increases, and you might not pay off the balance by the end of the repayment period unless you pay extra.

To avoid this uncertainty, many homeowners convert to a fixed rate during the draw period. This locks in your rate for the remainder of the draw period and the entire repayment period, making your payment predictable. The fixed rate is usually higher than the current variable rate, but it protects you if rates rise sharply.

Refinancing when the draw period ends

If the payment jump is too steep, you can refinance the HELOC balance into a home equity loan or a new first mortgage before the draw period ends. A home equity loan has a fixed rate and a set repayment term, so you know exactly what your payment will be. A new mortgage lets you refinance the entire home value, potentially at a lower rate if your credit has improved or home values have risen.

The catch is that refinancing costs money—closing costs typically run 2% to 5% of the loan amount. You'll also need sufficient home equity and good credit to may have access to. If you're already struggling financially, refinancing might not be an option. Starting to plan for this transition 6 to 12 months before the draw period ends gives you time to explore options and shop rates.

Some homeowners simply pay off the HELOC balance before the draw period ends, using savings, income, or proceeds from selling the home. This avoids the payment jump entirely but requires discipline to save or the ability to access cash.

Minimum payments and what they cover

During the draw period, the minimum payment is usually the interest accrued on your borrowed balance. If you owe $40,000 at 7% interest, your minimum is roughly $233 per month. Paying only the minimum means you're not reducing the debt, but you're meeting the lender's requirement.

During the repayment period, the minimum payment covers both interest and principal. The payment is calculated to pay off the balance by the end of the term. If you pay only the minimum, you'll owe nothing when the repayment period ends—but if rates have risen and your payment has increased, you might struggle to afford it.

Some lenders allow you to set up automatic payments, which can help you stay on track. Others require you to make payments by check or online transfer. Missing a payment can trigger late fees and damage your credit, so understanding your payment due date and method matters.

Frequently Asked Questions

What happens if I can't afford the payment when the draw period ends?

You can refinance the balance into a home equity loan or a new mortgage, though this requires closing costs and a new application. You can also try to negotiate with your lender, though most won't reduce the payment. If you can't refinance or negotiate, defaulting on the HELOC can result in foreclosure, since the HELOC is secured by your home.

Can I extend the draw period to delay the payment increase?

Most lenders don't allow extensions, but some may offer a conversion to a fixed-rate home equity loan at the end of the draw period. This doesn't extend borrowing, but it can spread the repayment over a longer term, lowering the monthly payment. Ask your lender about this option before the draw period ends.

Do I have to use the entire credit line?

No. You only pay interest on what you borrow. If you have a $100,000 HELOC but only use $20,000, you pay interest on $20,000. You can leave the rest untouched and borrow it later if you need it, as long as you're still in the draw period.

What if interest rates drop during the repayment period?

If your HELOC has a variable rate, your payment will drop when rates fall. If you locked in a fixed rate, your payment stays the same regardless of market rates. Fixed rates protect you from rising rates but don't benefit you if rates fall.

Can I pay off the HELOC early without a penalty?

Most HELOCs have no prepayment penalty, so you can pay off the balance whenever you want without extra fees. Paying early reduces the total interest you'll pay over the life of the loan. Check your promissory note or ask your lender to confirm there's no prepayment penalty on your specific HELOC.