HELOC Draw Period vs. Repayment Period: What Changes and When

The draw period

This is the window when the line is open. You can borrow up to your limit, pay it down and borrow again. Its length depends on the program. In the files Tyler Huntington, the loan officer who reviews this site, sees most often, draws run 3 or 5 years: a 3-year draw followed by a 17-year repayment, or a 5-year draw followed by up to 25 years. Other programs use longer draws or different structures. Some programs fund the entire line at closing, so there's no separate borrowing phase.

Payments during the draw depend on the plan. Some require interest only on what you've drawn. Others require principal and interest from the start. If you pay only interest, the balance doesn't go down.

The repayment period

When the draw period ends, you can't borrow more. What happens to the balance depends on your agreement:

• Amortizing repayment. The balance is repaid with principal and interest over a set term. The 17 and 25-year terms below match common structures; your program may differ.
• Balloon. Some plans require the full balance when the draw period ends. You'd pay it, refinance it with the lender or get a loan from another lender.
• Renewal. Some plans allow the line to be renewed for another draw period. Others don't.

On a variable-rate HELOC the rate keeps adjusting during repayment, within the caps in your agreement.

How much the payment can jump

Say you drew $100,000, paid interest only for the whole draw period, and still owe $100,000 when it ends.

The interest-only years cost less each month, but they don't touch the balance. Over a 5-year draw at $729 a month, that's about $43,750 of interest, and you'd still owe the full $100,000. Paying down even part of the principal during the draw shrinks the jump later. The calculator shows interest-only and principal-and-interest payments side by side.

Where to find your terms

When you apply, federal rules require the lender to tell you:

• How long the draw and repayment periods last.
• How the minimum payment is figured, and whether paying only the minimum leaves a balloon payment.
• An example of the payments and repayment time on a $10,000 balance.
• For a variable rate, the maximum rate and how payments would have changed over the most recent 15 years of the index.

Already have a HELOC? Your agreement and opening disclosures show both periods, and your lender can tell you the exact date the draw ends.

Options before the draw period ends

• Pay down principal now. Every dollar you repay during the draw is a dollar that won't need to be amortized later.
• Ask about renewal. Some plans can be renewed for another draw period.
• Convert to a fixed rate. Some lenders let you lock all or part of a balance at a fixed rate. See fixed-rate HELOCs.
• Refinance. A new HELOC, a home equity loan or a cash-out refinance can replace the balance. Each is a new loan, so you'd qualify again on your credit, income and home value at that time.
• Call the lender early. Federal banking regulators have told banks to plan for borrowers reaching the end of their draw periods. Start the conversation months ahead, not weeks.

Can the lender end the draw early?

A lender can stop new draws or lower the limit before the draw period ends, but only in situations federal rules allow. They include a significant decline in your home's value, a material change in your finances that leads the lender to reasonably believe you can't make the payments, and a default on a material obligation in the agreement. If the reason goes away, the lender has to restore the line, though your agreement may require you to ask for it. Still, an untouched line isn't a sure thing in a downturn.

Questions about your own situation? Contact a licensed loan officer. It's optional, and your information is not sold to lead marketplaces.