How HELOC payments work
A HELOC (home equity line of credit) has two phases, and how you pay depends on which one you're in. During the draw period—usually 5 to 10 years—you can borrow money whenever you need it, and you typically pay only the interest on what you've borrowed. Once the draw period ends, you enter the repayment period, which lasts 10 to 20 years. Now you can't borrow anymore, and you must pay back both the principal (the money you borrowed) and interest in monthly installments.
Your monthly payment during the draw period is often smaller because you're paying interest only. When repayment begins, your payment jumps significantly because you're now paying down the actual debt. Some HELOCs let you pay principal during the draw period too, which reduces what you owe when repayment starts.
The payment amount changes if your HELOC has a variable interest rate, which most do. When the rate goes up, your payment goes up. When it goes down, your payment goes down. A few lenders offer fixed-rate HELOCs or let you lock in a fixed rate on part of your balance, which keeps that portion's payment stable.
Key Takeaways
- During the draw period, you typically pay interest only on borrowed money; during repayment, you pay both principal and interest in monthly installments.
- Your payment amount will change if your HELOC has a variable rate, since interest rates fluctuate with the market.
- You can pay more than the minimum each month to reduce what you owe faster and pay less interest overall.
- When the draw period ends, your lender will tell you the new repayment amount, and you must begin paying it or the HELOC may be frozen.
What happens when the draw period ends
Your lender is required to notify you before the draw period ends—usually 60 to 120 days in advance. This notice tells you the new monthly payment amount for the repayment period. The jump can be steep: if you borrowed $50,000 and paid only interest for 10 years, your new payment will now include principal repayment on the full $50,000 balance.
If you can't afford the new payment, you have limited options. Some lenders will let you refinance the HELOC into a new one, which resets the draw period and delays repayment. Others may let you convert the balance to a fixed-rate home equity loan. However, these options depend on your credit score, income, and home value at that time. If you don't make the new payment or reach an agreement with your lender, the HELOC can be frozen, meaning you lose access to any remaining credit line and may face default.
Making payments during the draw period
During the draw period, your lender sends you a monthly statement showing the minimum payment due. This is almost always interest only, calculated on your current balance. If you borrowed $30,000 at 8% annual interest, your monthly interest-only payment would be about $200. You are not required to pay principal, but you can choose to.
Paying principal during the draw period is optional but smart. Every dollar of principal you pay reduces the amount you'll owe when repayment starts, which lowers your future monthly payment. It also means you'll pay less total interest over the life of the loan. Your lender's website or app usually lets you make extra payments without penalty.
If you don't make the minimum payment, your lender will report the missed payment to credit bureaus, which damages your credit score. A HELOC is secured by your home, so persistent non-payment can lead to foreclosure, though lenders typically try to work with borrowers before taking that step.
Making payments during the repayment period
Once repayment begins, your monthly payment is fixed (if you have a fixed rate) or variable (if your rate adjusts). This payment covers both principal and interest and is calculated so that the balance reaches zero by the end of the repayment period. The payment is higher than the draw-period payment because you're now paying down the debt itself.
You must make this payment every month. If you miss a payment, the same consequences explore: credit damage and eventual risk of foreclosure. However, you can still pay more than the minimum. Paying extra principal shortens the repayment period and reduces total interest paid. Some lenders charge no penalty for early payoff, though you should confirm this with yours.
If your HELOC has a variable rate, your payment may change annually or when the rate adjustment period arrives. Your lender will send you a new payment amount when this happens. If rates rise sharply, your payment could increase significantly, so it's worth monitoring rate trends and considering whether to lock in a fixed rate if that option is available.
Setting up automatic payments
Most lenders let you set up automatic monthly payments from your checking or savings account. This ensures you never miss a payment and helps protect your credit. You can usually choose the payment date—often the 1st or 15th of the month—so it aligns with when you receive income.
Automatic payments typically cover the minimum amount due. If you want to pay extra, you can either set the automatic payment higher or make additional payments manually through your lender's website or app. Some people set their automatic payment to the minimum and then make extra payments when they have extra cash, which gives them flexibility.
You can change or cancel automatic payments anytime, but be careful: if you cancel and forget to pay manually, you'll be late. It's safer to keep automatic payments on and adjust the amount as needed.
Paying off a HELOC early
You can pay off your HELOC balance in full at any time without penalty (confirm this with your lender, as terms vary). Paying off early saves you interest and frees up the credit line. Some people pay off their HELOC as soon as they can afford to; others keep it open as an emergency fund even after the draw period ends.
If you want to pay off the balance quickly, calculate how much interest you'll save. For example, if you have $40,000 at 7% interest with 15 years left on repayment, paying an extra $500 per month could cut years off the loan and save thousands in interest. Your lender can provide an amortization schedule showing how extra payments affect your payoff date.
Paying off a HELOC does affect your credit score slightly, because it reduces your available credit and changes your credit mix. However, the long-term benefit of eliminating debt outweighs this temporary dip. Your score typically recovers within a few months.
What to do if you can't make a payment
If you're facing a missed payment, contact your lender when ready. Explain your situation and ask about options. Many lenders offer forbearance, which temporarily reduces or pauses your payment while you get back on your feet. Forbearance is not forgiveness—you still owe the money—but it buys you time and prevents when ready credit damage.
Some lenders may let you make a partial payment or extend your payment date. Others might offer a loan modification that changes the terms. The key is to reach out before you miss the payment, not after. Once a payment is 30 days late, the damage to your credit is done, and your options narrow.
If you're in the draw period and struggling, you might stop borrowing and focus on paying down what you've already taken out. If you're in repayment and can't afford the new payment amount, ask whether the lender will refinance you into a new HELOC or convert the balance to a home equity loan with a longer repayment term.
Understanding variable vs. fixed rates and payments
Most HELOCs start with a variable interest rate, which means your rate and payment can change. The rate is usually tied to a market index (like the prime rate) plus a margin set by your lender. When the index rises, your rate rises, and your payment goes up. When the index falls, your rate falls, and your payment goes down.
Some HELOCs offer a fixed-rate option, either for the entire balance or for a portion of it. A fixed rate means your payment stays the same for the life of the loan, regardless of market changes. Fixed rates are typically higher than the starting variable rate, but they protect you from payment shock if rates climb.
If your HELOC is variable and rates are rising, ask your lender whether you can convert to a fixed rate. This is usually possible but may come with a fee or a slightly higher rate. Locking in a fixed rate during a low-rate environment can save you money over time, especially if you're in the repayment period and facing a long payoff timeline.
Frequently Asked Questions
What happens if I only pay interest during the draw period?
You'll owe the full borrowed amount when the draw period ends. Your repayment-period payment will be higher because you're paying back all the principal you borrowed, not just interest. If you can't afford that payment, you may need to refinance or negotiate with your lender.
Can I extend my HELOC draw period?
Some lenders allow you to refinance into a new HELOC, which gives you a fresh draw period. However, this depends on your credit, income, and home value. You'll also pay closing costs. Ask your lender about this option before your draw period ends.
Do I have to pay off my HELOC before I sell my house?
Yes. When you sell, the proceeds go to pay off all debts secured by the home, including your HELOC. Your lender will be paid from the sale proceeds before you receive any money. If the sale price doesn't cover what you owe, you'll need to pay the difference out of pocket.
What's the difference between paying interest-only and paying principal?
Interest-only payments cover the cost of borrowing but don't reduce what you owe. Principal payments reduce the actual debt. Paying principal during the draw period lowers your balance and your future repayment-period payment, saving you money in the long run.
Will paying off my HELOC hurt my credit score?
Paying off a HELOC may cause a small, temporary dip in your credit score because it reduces available credit and changes your credit mix. However, the score typically recovers within a few months, and eliminating debt is good for your long-term financial health.