The Two Phases of a HELOC: Draw and Repayment

A HELOC repayment happens in two separate phases, and the rules change between them. During the draw period — usually 5 to 10 years — you can borrow money whenever you want, up to your credit limit, and you typically pay only interest on what you've borrowed. Once the draw period ends, the repayment period begins — usually 10 to 20 years — and you stop borrowing. Instead, you pay back the full balance: both the principal you borrowed and any remaining interest.

The shift from draw to repayment is automatic. Your lender will tell you the exact date when it happens, and your monthly payment will change on that date. Many borrowers are surprised by how much their payment jumps because they've been paying interest-only for years and suddenly owe principal payments too.

Key Takeaways

  • During the draw period, you pay interest only on money you've actually borrowed, and you can withdraw more whenever you need it.
  • When the draw period ends, you enter the repayment period and must pay back both principal and interest, even if you stop borrowing.
  • Your monthly payment typically increases significantly at the start of the repayment period because you're now paying down the balance instead of just interest.
  • Some HELOCs let you extend the draw period or convert to a fixed rate before repayment begins, but you must ask your lender about this option in advance.
  • If you don't pay during the repayment period, the lender can foreclose on your home because the HELOC is secured by your house.

What You Pay During the Draw Period

During the draw period, your payment covers only the interest on the money you've borrowed. If you have a $100,000 credit limit but have only borrowed $30,000, you pay interest on $30,000, not the full $100,000. The interest rate on a HELOC is usually variable, meaning it changes when the prime rate changes — typically once every few months or once a year, depending on your lender and the index they use.

You can borrow more money during this phase by writing a check, using a debit card linked to the account, or requesting a transfer to your bank account. Each time you borrow, your interest payment goes up because you owe interest on a larger balance. Some HELOCs let you set up automatic payments; others require you to pay at least the interest each month or face a late fee and damage to your credit score.

The draw period is the cheapest time to use a HELOC because you're not paying down any principal. However, this also means your debt isn't shrinking — it's only growing if you keep borrowing.

The Transition to the Repayment Period

When your draw period ends, the HELOC converts to a repayment-only account. You can no longer borrow money. Your lender will send you a notice 30 to 60 days before this happens, telling you the new payment amount and the new terms. The notice will also state how long the repayment period will last — typically 10 to 20 years.

Your new payment will be much higher because it now includes both principal and interest. For example, if you borrowed $50,000 during the draw period and paid only interest for 10 years, your monthly payment might have been around $200 to $250. When repayment begins, that same $50,000 might require a payment of $500 to $600 per month, depending on the interest rate and the length of the repayment period.

Some lenders offer options before repayment begins: you may be able to convert your variable-rate HELOC to a fixed-rate loan, or extend the draw period for another few years. These options usually come with a fee or a higher interest rate, and you must ask about them before the draw period ends. Once repayment has started, these options are usually no longer available.

How Principal and Interest Are Split in Your Payment

During the repayment period, each monthly payment is divided between principal and interest. Early in the repayment period, most of your payment goes toward interest, and only a small portion reduces your balance. As time passes, the split shifts — more of each payment goes toward principal, and less toward interest.

Your lender will send you a statement each month showing exactly how much of your payment went to principal and how much went to interest. This breakdown matters for taxes: the interest portion may be tax-deductible if you use the HELOC to improve your home, but you should confirm this with a tax professional because the rules depend on how you spent the money.

If you make extra payments toward principal during the repayment period, you reduce the total interest you'll pay over the life of the loan and shorten the time until the balance is paid off. Most lenders allow extra payments without penalty.

What Happens If You Can't Pay During Repayment

A HELOC is a secured loan, meaning your home is collateral. If you miss payments during the repayment period, the lender can foreclose — take your home and sell it to recover what you owe. This is different from an unsecured loan like a credit card, where the lender can sue you but cannot take your house.

Missing even one payment can damage your credit score and trigger late fees. Missing several payments in a row puts you at serious risk of foreclosure. If you're struggling to make payments, contact your lender when ready. Some lenders offer forbearance (temporarily lowering or pausing payments) or loan modification (changing the terms), though these options are not may provide and may come with fees or a higher interest rate.

Once the repayment period has started, you cannot go back to the draw period or borrow more money from the HELOC. Your only option is to pay off the balance or refinance into a different loan.

Comparing HELOC Repayment to Other Home Loans

A traditional home equity loan works differently: you borrow a lump sum upfront, and you begin paying principal and interest when ready. There is no draw period. Your payment stays the same for the entire loan term if you have a fixed rate, or it changes with the market if you have a variable rate.

A cash-out refinance replaces your entire mortgage with a new, larger one. You get cash upfront and make one monthly payment that covers the new mortgage balance. There is no separate draw or repayment phase.

The HELOC's two-phase structure makes it useful if you don't need all the money at once — for example, if you're planning a renovation that will happen over several years. You borrow only what you need, when you need it, and pay interest only on what you've borrowed. However, this flexibility comes with the risk that you'll be surprised by the payment jump when repayment begins.

Planning for the Repayment Period

The best time to prepare for repayment is during the draw period, when you still have time to plan. Calculate what your payment will be when the draw period ends. Your lender can provide this estimate, or you can use an online calculator if you know the balance you expect to owe, the interest rate, and the length of the repayment period.

If the payment will be too high, you have options: pay down the balance during the draw period so you owe less when repayment begins; refinance into a home equity loan or a new mortgage before the draw period ends; or plan to sell the home and pay off the HELOC from the proceeds. Starting this planning early gives you more choices than waiting until the draw period is almost over.

Some borrowers set aside money each month during the draw period, even though they're only required to pay interest. This builds a cushion and gets you used to a higher payment before it becomes mandatory.

Frequently Asked Questions

Can I extend the draw period if I'm not ready to start repaying?

Some lenders allow you to extend the draw period for a few more years, but you must request this before the current draw period ends — usually at least 30 to 60 days in advance. Extending typically comes with a fee or a higher interest rate. Once the repayment period has started, extension is usually not available, so contact your lender early if you think you'll need more time.

What if I pay off the HELOC before the repayment period ends?

You can pay off a HELOC at any time without penalty on most accounts. Paying it off early saves you interest and eliminates the debt. Some lenders charge a prepayment fee, but this is uncommon for HELOCs — check your loan documents or ask your lender to confirm whether yours has one.

Does the interest rate change during the repayment period?

If your HELOC has a variable rate, yes — the rate can change during repayment, just as it did during the draw period. This means your monthly payment can go up or down as the prime rate changes. If you converted to a fixed rate before repayment began, your rate stays the same for the entire repayment period.

Can I borrow more money after the repayment period starts?

No. Once the draw period ends and the repayment period begins, the account converts to repayment-only. You cannot borrow additional funds. If you need more money, you would have to open a new HELOC or refinance into a different loan.

What happens to my HELOC if I sell my home?

When you sell, the proceeds from the sale pay off all debts secured by the home, including the HELOC balance. The sale cannot close until the HELOC is paid in full. If the sale price is less than what you owe on the HELOC and your mortgage combined, you may owe money out of pocket, or you may need to negotiate a short sale with your lender.