HELOC Interest-Only Payments Explained: What You'll Really Pay (2026)

Those low HELOC payments during the draw period? They're interest-only. And when repayment starts, many borrowers experience sticker shock.

Here's exactly how HELOC payments work—and how to prepare.

How HELOC Payments Work During the Draw Period

Most HELOCs have a 10-year draw period. During this time, you can borrow and repay flexibly, like a credit card.

Your minimum payment? Interest only.

That means you're paying to use the money, but you're not paying down the principal. The balance doesn't shrink unless you choose to pay extra.

This feels great at first. Low monthly payments. Maximum flexibility. But it's setting you up for a bigger payment later.

Interest-Only Payment Calculation

The formula is simple:

Monthly Payment = Balance × (Annual Rate ÷ 12)

Example at 8% APR:

If you're only paying $333/month on a $50,000 balance, that feels manageable. But you're not building any equity in your loan.

Variable rates add uncertainty. If your rate increases from 8% to 10%, that $50,000 balance jumps from $333 to $417/month—without borrowing another dollar.

What Happens When Repayment Period Starts

After the draw period (typically 10 years), repayment period begins. Usually that's 15-20 years.

Now you're paying principal AND interest. No more minimum interest-only payments.

Here's the payment shock:

That's a 30-90% payment increase overnight, depending on your rate and repayment term.

This is payment shock. And it catches people off guard.

Why Interest-Only Can Be Risky

The appeal is obvious: low payments, maximum flexibility. But the risks are real:

You're Not Building Equity Ten years of payments and your balance is exactly the same. That's a lot of money going nowhere.

Your Balance Never Shrinks Unlike a mortgage where you build equity over time, interest-only payments keep you at the starting line.

Rate Increases Hit Harder When rates rise, your payment increases immediately. And you still owe the same amount.

False Sense of Affordability A $50,000 HELOC at $333/month feels affordable. The same loan at $478/month during repayment might not be.

Smart Strategies for Interest-Only HELOCs

You don't have to pay just the minimum:

Pay More Than the Minimum Even $100 extra per month reduces your balance. Over 10 years, that's $12,000 less you owe when repayment starts.

Make Principal Payments During Low-Rate Periods When rates dip, put the savings toward principal. You'll thank yourself later.

Set Calendar Reminders Mark your repayment start date now. Three years before it hits, start adjusting your budget.

Budget for the Higher Payment Today Calculate what your repayment payment would be. Start putting that aside monthly. When the payment increases, you're ready.

Consider Fixed-Rate Conversion Some HELOCs let you lock portions into fixed rates. Do this before repayment starts if you want predictability.

When Interest-Only Makes Sense

Interest-only isn't always bad. It works well for:

Short-Term Needs Planning to sell your home in 3-5 years? Interest-only minimizes payments until you pay off the balance with sale proceeds.

Variable Income Seasonal business owners or commissioned salespeople might prefer low minimums with flexibility to pay more in good months.

Strategic Investing If you're using HELOC funds for investments earning more than your HELOC rate, interest-only maximizes your capital at work. Risky, but sometimes rational.

Bridge Financing Waiting for another property to sell? Interest-only keeps payments manageable during the gap.

Calculate Your Future Payment

Don't wait until repayment starts to learn what you'll owe.

Draw Period Payment (Interest Only): Balance × Rate ÷ 12 = Monthly Payment

Repayment Period Payment (Principal + Interest): Use any loan calculator. Input your remaining balance, repayment term, and current rate.

Run both numbers before you borrow. Know exactly what you're signing up for.

Frequently Asked Questions

Can I pay principal during the draw period?

Yes. You can pay as much as you want. Any amount above the interest-only minimum goes toward principal.

What happens if I can't afford the higher payment?

Contact your lender before you miss payments. Options might include refinancing, loan modification, or hardship programs.

Can I refinance my HELOC before repayment starts?

Yes. You can refinance into a new HELOC (restarting the draw period) or consolidate into a different loan type.

The Bottom Line

Interest-only payments feel manageable—until they're not. Know your numbers. Pay more than the minimum when you can. And prepare for repayment before it arrives.

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Know exactly what you'll pay. Use HonestCasa's HELOC calculator to see your payments during draw period AND repayment. No surprises.

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