A HELOC has two separate phases, and how you pay depends on which one you're in

A HELOC (home equity line of credit) works like a credit card backed by your house. During the draw period—usually 5 to 10 years—you can borrow money whenever you want, up to your credit limit. You typically pay only interest on what you've borrowed during this time. Then the repayment period begins, often lasting 10 to 20 years, and you must pay back both principal and interest on the full amount you borrowed. The payments jump significantly because you're no longer just paying interest.

Understanding which phase you're in matters because it changes what you owe each month. Many borrowers are surprised when the draw period ends and their payment triples or quadruples. Knowing this in advance lets you plan for it.

Key Takeaways

  • During the draw period, you pay interest-only on money you've actually borrowed, and payments are lowest.
  • When the repayment period starts, you must pay both principal and interest on the full borrowed amount, and your payment increases significantly.
  • 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.
  • If you can't afford the repayment phase payment, you may be able to refinance into a home equity loan or a new HELOC before the phase change happens.
  • Missing payments on a HELOC puts your house at risk because the lender can foreclose, just as with a mortgage.

What you pay during the draw period

In the draw period, you only pay interest on the balance you're actually using. If your HELOC has a $100,000 limit but you've only borrowed $30,000, you pay interest only on that $30,000. Your monthly payment is calculated by multiplying your current balance by your interest rate and dividing by 12.

Interest rates on HELOCs are usually variable, meaning they move with the prime rate. When the Federal Reserve raises rates, your payment goes up. When rates fall, your payment goes down. Some lenders offer the option to lock in a fixed rate on part or all of your balance, but this typically costs more and you have to request it.

Many borrowers use the draw period to pay down what they've borrowed, which lowers their monthly payment. Others borrow more as they need it. The key is that you control how much you owe—you're not forced to borrow the full limit.

What happens when the draw period ends

When your draw period ends, the repayment period begins automatically. On that date, you stop being able to borrow new money. Your lender will send you a new payment schedule showing your new monthly amount, which will be much higher because now you're paying back principal plus interest over a fixed number of years.

For example, if you borrowed $50,000 during the draw period and paid only interest for 10 years, you still owe the full $50,000. Now that $50,000 must be repaid over the next 15 years. Your payment jumps from roughly $200 per month (interest-only) to roughly $400 per month (principal and interest combined). The exact amount depends on your interest rate and the length of the repayment period.

This transition catches many borrowers off guard because they've grown used to lower payments. If you took out a HELOC years ago, check your paperwork now to find out when your draw period ends. If it's within the next year or two, start planning for the payment increase.

Options before the repayment phase begins

You don't have to accept the automatic jump in payment. Before your draw period ends, contact your lender and ask about your options. Some lenders will let you extend the draw period for another 5 or 10 years, though this usually means paying a higher interest rate. Others will let you convert your HELOC balance to a fixed-rate home equity loan, which locks in your rate and spreads payments over a set term.

Another option is to refinance. You can take out a new home equity loan or a new HELOC with a different lender before your current draw period ends. This gives you time to shop for better terms. If you refinance into a home equity loan instead of another HELOC, you'll have a fixed payment from day one, with no surprise jump later.

The time to explore these options is 3 to 6 months before your draw period ends, not the month it ends. Lenders need time to process, and you want to compare offers from multiple banks or credit unions.

How payments work during the repayment period

During repayment, your payment is fixed and includes both principal and interest. You cannot borrow additional money—the line of credit is closed. You must make the full payment every month for the entire repayment period, usually 10 to 20 years.

If your HELOC had a variable rate during the draw period, it may stay variable during repayment, or your lender may have converted it to fixed when the repayment period began. Check your loan documents or call your lender to confirm. A variable rate during repayment means your payment can still change if interest rates move, even though you're paying down principal.

Some people pay more than the required amount to finish early and save on interest. Others stick to the minimum. Unlike a credit card, you cannot skip a payment or pay less than the required amount without risking default.

What happens if you can't afford the repayment payment

If the repayment payment is too high when it arrives, you have a few paths. The first is to contact your lender when ready and ask about a loan modification. Some lenders will extend the repayment period to lower the monthly amount, though this means paying more interest overall.

The second is to refinance before the payment shock hits. If you still have equity in your home and your credit is decent, you can refinance into a new HELOC or home equity loan with better terms. This must happen before your current draw period ends, because once you're in repayment, lenders are less willing to refinance.

The third option is to pay down the balance during the draw period so that when repayment begins, you owe less. Even small extra payments reduce the amount you'll owe when the phase changes.

If you miss payments during the repayment period, your lender can foreclose on your home. This is not like missing a credit card payment—your house is collateral. Missing even one payment can trigger late fees and damage your credit score.

Interest rates and how they affect your payment

Most HELOCs have variable rates tied to the prime rate, which means your payment can change monthly or quarterly depending on your lender's terms. When the Federal Reserve raises the prime rate, your interest rate goes up and your payment increases. When the prime rate falls, your payment decreases.

During the draw period, a rate increase means you pay more interest on your current balance. During the repayment period, a rate increase means your payment goes up even though you're paying down principal. This is different from a fixed-rate home equity loan, where your payment never changes.

Some lenders offer the option to convert part or all of your HELOC to a fixed rate. This locks in your rate for the remainder of the draw period and into repayment, but the fixed rate is usually higher than the variable rate at the time of conversion. Ask your lender about this option and what it costs.

Frequently Asked Questions

Do I have to pay anything during the draw period?

Yes, you must pay the interest on whatever balance you're carrying. Some HELOCs require a minimum payment even if you haven't borrowed anything, but most don't. If you borrow $10,000 and don't pay it down, you owe interest on that $10,000 every month until you repay it or the draw period ends.

What if I pay off my HELOC before the repayment period starts?

If you pay off the entire balance before the draw period ends, you're done. You owe nothing and the HELOC closes or remains open with a zero balance. You can sometimes reopen it later if your lender allows, but you'll have to requalify. Paying it off early saves you all the interest you would have paid during repayment.

Can I borrow money again during the repayment period?

No. Once the repayment period begins, the line of credit closes and you cannot borrow new money. You can only make payments on what you already owe. If you need to borrow more, you would have to refinance into a new HELOC or take out a different loan.

What if interest rates drop during my repayment period?

If your HELOC has a variable rate, your payment will decrease when rates drop. If you locked in a fixed rate, your payment stays the same. With a fixed rate, you benefit from stability but you don't benefit if rates fall. With a variable rate, you benefit from rate drops but you're exposed to rate increases.

How do I know when my draw period ends?

Check your original HELOC agreement or your most recent statement. The draw period length is listed there—usually 5, 7, or 10 years from the date you opened the account. If you opened it in 2018 for 10 years, the draw period ends in 2028. Call your lender if you can't find this information in your documents.