How to Prepare for the End of Your HELOC Draw Period
When you take out a home equity line of credit (HELOC), you get a period of time — known as the HELOC draw period — to spend the money you’ve been approved to borrow. Similar to a credit card, you just spend what you need up to a set limit and make the minimum payments until your draw period ends.
Once the draw period is over, though, you can’t access the credit line anymore, and you’ll have to start making much larger payments. Here’s what you need to prepare for the end of your HELOC draw period.
What is the draw period on a HELOC?
A HELOC has two phases: The draw period is for spending the loan money, and the repayment period is for paying it back.
Your draw period is a set number of years, typically anywhere from five to 10 years or more. During that time, you’ll have to make minimum interest payments, but in most cases, you won’t have to pay down the principal balance. This typically means you’ll have relatively low payments that vary based on how much you’ve drawn, just like with a credit card.
Spending money during the draw period: How it works
Let’s say you took out a HELOC to pay for a home improvement project, such as finishing your basement. The draw period is the window of time during which you’re buying supplies or paying a contractor to do the work.
Most of the time, your lender will give you a credit card or special checks you can use to spend the money. It will also set your credit limit, or the maximum amount you can borrow, based on how much home equity you have.
What you need to know before the draw period ends
You need to know how you plan to repay the HELOC once the draw period ends, and the realities of the repayment period hit. It’s not uncommon for people’s minimum payment to double once the draw period ends and full repayment begins.
Depending on your repayment strategy, you may need to take action before the draw period ends. We’ll cover these in more detail later.
At the end of the draw period, you may be able to renew or refinance your line of credit and restart the clock on a new draw period. Otherwise, you’ll enter the repayment period.
How does HELOC repayment work?
Once the repayment period hits, you won’t be able to make charges to your credit line The bank will require you to start paying back what you’ve borrowed, with interest. Now that the days of interest-only payments are over, expect your monthly payments to jump significantly — especially if you didn’t pay down the principal balance at all during your draw period.
Your repayment period will generally be a set number of years, typically 10 to 20. Most HELOCs have variable interest rates, so your monthly payment may change over the course of your repayment period. This is different from a standard mortgage or home equity loan, both of which you immediately start paying back with a fixed interest rate, meaning your monthly payments don’t change.
Example payments: HELOC draw period vs repayment period
For example, let’s say you’ve finished your basement renovation. You spent $25,000 on materials and paid for them with a fixed-rate HELOC with a 7.75% interest rate. Assuming you spent the money in multiple draws over the course of the draw period and didn’t pay more than the minimum (interest-only) payments during this time.
Here’s what your payments would look like in both the draw and repayment periods:
| Draw period | Repayment period | |
|---|---|---|
| Time period | Years one through 10 | Years 11 through 20 |
| Monthly payment | $147 on average | $300 |
As you can see, your monthly payment would more than double once the draw period ended.
Some HELOCs require you to pay what you owe immediately when the draw period ends. This is called a balloon payment. It’s not the most common option, though, since any loan with a balloon payment is a nonqualified (non-QM) mortgage. Non-QM loans fall outside the federal standards for mortgages set by the Dodd-Frank Act.
Non-QM loans typically come with higher interest rates and fees because lenders take on more risk without the legal protections that QM loans provide. However, they can offer more flexibility for borrowers who can’t meet the traditional requirements but are still creditworthy.
Your HELOC repayment options before the draw period ends
1. Make the minimum payments
It’s OK to make the minimum payments during the draw period as long as you’re keeping tabs on when the draw period ends and what your payments might look like once it does. It’s common for monthly payments to more than double once the repayment period hits, though, so make sure you have enough room in your budget to comfortably afford the higher amount.
2. Pay more than the minimum payment during the draw period
During the draw period, you usually won’t be forced to make more than the minimum interest payments on the amount you borrow. However, you’ll likely have the option to pay down the principal balance as well — and doing so can help ease any whiplash you might feel when you enter the repayment period.
It can pay to double-check your loan paperwork for prepayment penalties, which some HELOCs have. The penalty is an additional fee that’s charged when you pay off the credit line in full. In some cases, these fees can also apply when you make more than your scheduled payment.
3. Convert to a fixed-rate loan
HELOCs usually have variable interest rates, but some lenders will allow you to choose a fixed-rate option or convert some or all of an existing HELOC balance to a fixed-rate loan. This has the advantage of locking in your monthly payment, so you don’t have to worry about it rising over time. Keep in mind, however, that lenders usually require you to convert to a fixed-rate option before the end of the draw period.
HELOC repayment options after the draw period ends
1. Make the standard payments
Once you enter the repayment period, unless you’re facing a balloon payment, your lender will fully amortize the loan. This means the lender will create a monthly principal and interest payment plan that will fully pay off the loan over a set number of years.
HELOCs traditionally come with variable interest rates, so your payments will likely change over time. The changes will track interest rate benchmarks, so your payment will rise and fall with the broader market.
2. Renew or refinance to another HELOC
At the end of the draw period, you may be able to renew your HELOC. This can save you from having to take out a new loan if you plan to borrow more in the future. You’ll then re-enter a new draw period, restarting the clock on the time you get to spend money using your credit line.
3. Refinance to a home equity loan
Another option is to use a home equity loan to pay off your outstanding HELOC balance. In today’s market, home equity loan rates and HELOC rates are typically very similar to one another. Swapping into a home equity loan may make sense if you prefer a loan with a fixed rate and predictable payments.
4. Use a cash-out refinance
If you want to refinance your first mortgage, you can use a cash-out refinance to pay off your HELOC at the same time. However, if you use the cash to pay off some — but not all — of the HELOC, you’ll have to pay extra fees or higher interest rates on that new first mortgage. The fees will depend on the combined loan-to-value (CLTV) ratio of both loans.
5. Make a balloon payment
Some HELOCs require a balloon payment at the end of the draw period. Because it will pay off the full amount, a balloon payment could be as large as tens of thousands of dollars. Don’t count on being able to refinance out of a balloon payment.
You may also choose to do this on your own by voluntarily paying off the loan with a lump sum at any time. Just be aware that some HELOCs charge a prepayment penalty if you completely pay off and close the loan ahead of schedule.
Frequently asked questions
Yes, you can choose to pay off a HELOC completely at any time. However, some HELOCs come with penalties if you pay them off early and/or close them out early.
In many cases, nothing — you can keep your full HELOC credit line in reserve for emergencies or choose never to use it. If you don’t plan to use your HELOC funds right away (or at all), make sure to check that your HELOC doesn’t charge an inactivity fee or require a specific initial draw.
With a variable-rate loan, the interest rate you pay will change periodically based on overall market conditions. The interest rate you pay on a HELOC is often tied to the prime rate, which is set by the nation’s major banks and influenced by the Federal Reserve. How often this resets varies from loan to loan, so be sure to note how often your rate will change. Your lender may also offer a low introductory rate for a short time.
Your HELOC will typically also have a maximum interest rate, called a cap. Some HELOCs also have caps on how much your monthly payment can increase, and minimum interest rates you pay if rates fall.
HELOCs are secured by your home, meaning you face foreclosure if you don’t make your payments. If you think you’ll miss a payment or run into trouble making payments on your HELOC, contact your loan servicer immediately.
Yes, you can take out a HELOC against the equity you have in any property, including investment and multifamily properties. However, you’ll probably have to pay a higher interest rate, since lenders consider it riskier to lend money against a home that the borrower doesn’t live in.
It may also be more difficult to find a lender willing to issue a HELOC secured by an investment property. However, LendingTree’s editorial team has reviewed several lenders that offer them, including TD Bank and Pentagon Federal Credit Union.
If you’re in the market for a HELOC but unsure of where to start, our list of the best home equity lenders of 2025 can help you identify a lender that suits your needs.
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