HELOC Draw Period vs Repayment Period: Complete Guide

One of the most misunderstood aspects of HELOCs is their two-phase structure: the draw period and the repayment period. Many borrowers are blindsided when their low, manageable monthly payments suddenly double or triple as they transition from one phase to the next. Understanding these two periods—and planning for the transition—is essential to using a HELOC successfully.

This guide breaks down everything you need to know about HELOC draw and repayment periods, including real payment examples, strategies to minimize payment shock, and how to prepare years in advance.

The Two Phases of a HELOC

Every traditional HELOC operates in two distinct phases:

Phase 1: Draw Period → Borrow money and make interest-only payments Phase 2: Repayment Period → No more borrowing, pay back principal + interest

Think of the draw period as the "access phase" and the repayment period as the "payback phase."

The Draw Period: Access and Flexibility

What Is the Draw Period?

The draw period is the initial phase when you can actively borrow from your HELOC. It typically lasts 5 to 10 years, with 10 years being most common.

During this time:

• ✓ Borrow up to your credit limit
• ✓ Repay and re-borrow freely
• ✓ Make minimum interest-only payments
• ✓ Option to pay more toward principal
• ✓ Access funds via checks, cards, or transfers

Draw Period Length by Lender Type

How Payments Work During Draw Period

Most HELOCs require only minimum interest-only payments during the draw period, though you can always pay more.

Interest-only payment calculation: (Outstanding Balance × Annual Interest Rate) ÷ 12 = Monthly Payment

Example 1: $50,000 balance at 8.5% APR

• Monthly payment: ($50,000 × 0.085) ÷ 12 = $354
• This pays only interest; principal remains $50,000

Example 2: $100,000 balance at 9.0% APR

• Monthly payment: ($100,000 × 0.090) ÷ 12 = $750
• Again, interest-only; principal stays at $100,000

Variable Balance Means Variable Payments

Unlike a traditional loan, your HELOC balance—and therefore your payment—changes as you draw and repay:

Month 1: Draw $20,000, balance = $20,000

• Payment @ 8.5%: $142

Month 3: Draw another $30,000, balance = $50,000

• Payment @ 8.5%: $354

Month 6: Pay down $10,000, balance = $40,000

• Payment @ 8.5%: $283

Month 9: Draw $25,000, balance = $65,000

• Payment @ 8.5%: $459

Your minimum payment adjusts automatically based on your current balance.

Advantages of Interest-Only Payments

1. Lower monthly obligations: Free up cash flow for other expenses or investments.

Example: $75,000 HELOC at 8.5%

• Interest-only payment: $531/month
• Principal + interest payment (15-year amortization): $738/month
• Monthly savings: $207

2. Flexibility to pay extra when possible: Pay down principal during high-income months, pay minimum during tight months.

3. Pay interest only on what you use: Borrow $50,000 from a $100,000 line? You only pay interest on the $50,000.

Disadvantages of Interest-Only Payments

1. Principal doesn't decrease: Making only minimum payments means you'll owe the full amount at the end of the draw period.

2. Sets up payment shock: Transitioning to repayment period can dramatically increase payments.

3. Temptation to overborrow: Easy access and low payments can lead to accumulating more debt than you can comfortably repay.

4. Interest rate risk: If rates rise significantly during a long draw period, even interest-only payments increase.

Smart Strategies During Draw Period

Strategy 1: Pay More Than the Minimum

Even small additional payments reduce your principal:

Example: $60,000 balance at 8.5%

• Minimum payment: $425 (interest only)
• Pay $650 instead: $225/month toward principal
• After 5 years: Balance down to $46,500
• Result: Easier transition to repayment period

Strategy 2: Create a Paydown Schedule

Don't wait for the repayment period to start reducing principal:

Year-by-year plan for $80,000 balance:

• Years 1-5: Interest-only ($567/month)
• Years 6-8: Add $200/month to principal
• Years 9-10: Add $400/month to principal
• Result: Balance of $64,000 at transition instead of $80,000

Strategy 3: Time Your Borrowing

Borrow late in the draw period for major expenses:

Better approach:

• Get HELOC early for emergency access
• Don't draw unless needed
• Make large draws in years 8-10 if possible
• Benefit: More time before repayment period begins on those funds

Strategy 4: Make Lump-Sum Payments

Use bonuses, tax refunds, or windfalls to reduce principal:

Example:

• $70,000 balance
• Annual $5,000 bonus → pays down HELOC
• After 3 years: $55,000 balance
• Benefit: Significantly lower payment in repayment period

The Transition: When Draw Period Ends

What Happens at the End of Draw Period?

When your draw period ends (typically after 10 years):

Immediate changes:

• ✗ Can no longer borrow additional funds
• ✗ Interest-only payments no longer allowed
• ✓ Must begin repaying principal + interest
• ✓ Payment increases significantly

Your credit line freezes: The remaining balance becomes a fixed loan.

The Payment Shock: Real Numbers

The transition from draw period to repayment period often causes dramatic payment increases. Here are real examples:

Example 1: $50,000 Balance

• Draw period payment @ 8.5%: $354/month (interest only)
• Repayment period payment @ 8.5%, 15 years: $492/month
• Increase: $138/month (39% higher)

Example 2: $75,000 Balance

• Draw period payment @ 9.0%: $563/month (interest only)
• Repayment period payment @ 9.0%, 15 years: $761/month
• Increase: $198/month (35% higher)

Example 3: $100,000 Balance

• Draw period payment @ 8.5%: $708/month (interest only)
• Repayment period payment @ 8.5%, 10 years: $1,241/month
• Increase: $533/month (75% higher)

Example 4: Worst-case scenario

• Balance: $150,000
• Rate increased from 8.0% to 11.0% over 10 years
• Draw period payment at end: $1,375/month
• Repayment period payment, 10-year term: $2,066/month
• Increase: $691/month (50% higher)

Factors That Affect Payment Increase

1. Remaining balance: Higher balance = larger increase

2. Repayment period length: Shorter term = higher payments

• 10-year repayment: Highest payments
• 15-year repayment: Moderate payments
• 20-year repayment: Lower payments (if available)

3. Interest rate at transition: If rates have risen, double impact

• Higher rate on interest-only payment
• Higher rate on amortized payment

4. How much principal you paid during draw period: Paying down principal during draw period significantly reduces payment shock

The Repayment Period: Paying It Back

What Is the Repayment Period?

The repayment period is the second phase when you must pay back what you borrowed. It typically lasts 10 to 20 years, with 15 years most common.

During this time:

• ✗ Cannot borrow additional funds
• ✗ Must make principal + interest payments
• ✓ Can still make extra payments
• ✓ Can pay off early (usually no penalty)

Typical Repayment Period Lengths

How Payments Work During Repayment Period

Your payment is calculated like a traditional loan, based on:

• Outstanding balance at transition
• Interest rate at transition (may be different from origination)
• Remaining term (repayment period length)

Amortization formula: Payment = P × [r(1+r)^n] / [(1+r)^n -1]

Where:

• P = Principal balance
• r = Monthly interest rate (annual rate ÷ 12)
• n = Number of months in repayment period

Example: $60,000 balance, 8.5% rate, 15-year repayment

• Monthly payment: $590
• Total interest paid: $46,232
• Total repaid: $106,232

Interest Rate Considerations

Remember, HELOCs typically have variable rates:

If rates rise during repayment period:

• Your payment increases
• More goes to interest, less to principal
• Loan takes longer to pay off (with some products)

If rates fall during repayment period:

• Your payment decreases
• More goes to principal
• Loan pays off faster

With rate caps: Most HELOCs limit how much rates can change:

• Periodic cap: Maximum change per adjustment (e.g., 2% per year)
• Lifetime cap: Maximum rate over life of HELOC (e.g., 18%)

Strategies for Repayment Period

Strategy 1: Refinance Before Transition

If you have substantial balance and rates are favorable, consider refinancing to a fixed-rate [[home equity loan](/blog/best-heloc-lenders-2026)](/blog/best-heloc-lenders-2026) before the repayment period starts:

Benefits:

• Lock in fixed rate
• Predictable payments
• Potentially lower rate (if available)
• Avoid future rate increases

When to consider: 1-2 years before draw period ends

Strategy 2: Pay Off Early

Most HELOCs allow prepayment without penalty:

Options:

• Refinance primary mortgage with cash-out
• Use savings or investment proceeds
• Sell assets (vehicle, property, etc.)

Benefit: Eliminate debt and monthly obligation entirely

Strategy 3: Make Extra Principal Payments

Even during repayment period, extra payments accelerate payoff:

Example: $70,000 balance, $688/month required payment

• Pay $900/month instead
• Extra $212/month toward principal
• Result: Pay off 4 years early, save $14,000+ in interest

Strategy 4: Budget for Higher Payments Now

Years before transition, start setting aside the difference:

Example: Current payment $400, future payment $700

• Start banking $300/month now
• Use to pay down principal or save for transition
• Benefit: No lifestyle shock when payment increases

Avoiding Payment Shock: Advanced Planning

5-Year Countdown Plan

5 years before repayment period:

• Calculate estimated new payment
• Create budget accommodating new payment
• Begin paying extra toward principal

3 years before:

• Evaluate refinancing options
• Lock in fixed rate if beneficial
• Increase extra principal payments

1 year before:

• Confirm repayment period terms with lender
• Finalize payment strategy
• Adjust budget to accommodate new payment
• Consider final lump-sum payment if possible

Payment Shock Calculator

Estimate your future payment now:

Step 1: Determine likely balance at end of draw period

• Current balance: $____
• Planned future draws: +$____
• Planned paydowns: -$____
• Estimated balance: $____

Step 2: Estimate interest rate (assume 1-2% higher than today)

• Current rate: ____%
• Potential increase: +____%
• Estimated rate: ____%

Step 3: Determine repayment period length

• Check your HELOC agreement
• Typically 10-15 years

Step 4: Calculate using online amortization calculator

• Input balance, rate, term
• Result: Your estimated new payment

Step 5: Compare to current payment

• New payment: $____
• Current payment: $____
• Increase: $____ (___%)

Special Situations and Alternatives

Renewing Your HELOC

Some lenders allow you to "renew" your HELOC before the draw period ends:

How it works:

• Apply for new HELOC to replace existing one
• New draw period begins
• Requalify based on current income, credit, home value

Considerations:

• Must requalify (income, credit, equity)
• New appraisal required
• Closing costs may apply
• Kicks the can down the road (delays repayment)

Warning: This strategy only works if you truly need continued access to funds and have improved your financial situation. It's not a solution for unaffordable debt.

Converting to Fixed-Rate Loan

Many lenders offer conversion options:

During draw period:

• Convert balance (or portion) to fixed rate
• Keeps remaining line open for draws
• Fixed portion amortizes separately

Before repayment period:

• Convert entire balance to fixed-rate home equity loan
• Closes HELOC
• Predictable payments for remaining term

Early Payoff Options

Sell the home: HELOC must be paid off at closing, along with primary mortgage

Refinance primary mortgage: [Cash-out refinance](/blog/cash-out-refinance-guide) can pay off HELOC, consolidating to single payment

Large windfall: Inheritance, business sale, lawsuit settlement, etc.

Red Flags and Warning Signs

Watch for these indicators that you may struggle with the transition:

🚩 You can't afford more than minimum payment now: If you can't pay extra during the draw period, repayment period will be very difficult

🚩 Your balance keeps growing: Continually drawing more shows lack of payoff plan

🚩 You're using HELOC for living expenses: Credit should fund specific purposes, not subsidize lifestyle

🚩 You haven't budgeted for higher payment: Ignoring the coming increase sets you up for failure

🚩 Your income has decreased: If you couldn't requalify today, repayment period may be unaffordable

🚩 Interest rate has increased significantly: Higher rate means even bigger payment shock

Frequently Asked Questions

Can I pay off my HELOC during the draw period?

Yes! You can pay off your HELOC in full at any time during the draw period, typically without penalty. Some lenders charge an early closure fee ($250-$500) if you close within the first 2-3 years.

What happens if I can't afford the repayment period payment?

Options include:

1. Refinance to longer term (if you qualify)
2. Refinance into primary mortgage (cash-out refinance)
3. Negotiate with lender for modified terms
4. Sell the home
5. As last resort: Let it go to foreclosure (severe consequences)

Best approach: Plan years in advance to avoid this situation.

Can I extend my draw period?

Some lenders offer extensions or renewals, but you must requalify based on:

• Current income and employment
• Current credit score
• Current home value and equity
• [Debt-to-income ratio](/blog/dti-ratio-explained)

Not guaranteed; depends on lender policy and your qualifications.

What if I don't use my HELOC during the draw period?

You still have the line available, but many HELOCs charge annual fees ($0-$100) even with zero balance. At the end of the draw period, if you never borrowed, you owe nothing and the HELOC simply closes.

Can I make interest-only payments during the repayment period?

No. During the repayment period, you must pay both [principal and interest](/blog/amortization-schedule-guide). The interest-only option ends when the draw period ends.

How much should I pay down during the draw period?

Aim to reduce your balance by at least 20-30% during the draw period. Better yet, create a complete payoff plan so you enter repayment period with manageable balance.

What if my rate increases dramatically?

Your rate is limited by caps:

• Periodic cap: Usually 2% per adjustment period
• Lifetime cap: Usually 18% maximum or Prime + 5-7%

Even in extreme rate environments, caps provide protection. However, even hitting the cap can make payments unaffordable if you haven't planned ahead.

Should I get a long or short repayment period?

Longer repayment period (15-20 years):

• Lower monthly payments
• More total interest paid
• More flexibility in budget

Shorter repayment period (10 years):

• Higher monthly payments
• Less total interest paid
• Faster debt elimination

Choose based on your budget and financial goals.

Ready to Get a HELOC with Confidence?

Understanding the draw period and repayment period—and planning for the transition—is essential to using a HELOC successfully. With proper planning, you can enjoy the flexibility of a HELOC during the draw period while avoiding payment shock when the repayment period begins.

At HonestCasa, we help you understand exactly how your HELOC will work over its entire lifecycle, with clear explanations of both phases and strategies to manage them effectively.

Get Started Today →

Get personalized HELOC terms and see your projected payments for both periods.

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