A home equity line of credit doesn't work like a traditional mortgage. Most HELOCs operate in two distinct phases, and the transition between them can catch borrowers off guard if they haven't planned for it.
The draw period: access and flexibility
During the draw period—commonly ten years—you can borrow against your approved credit line, repay, and borrow again, much like a credit card secured by your home. Many lenders structure this phase to require only interest payments on the outstanding balance, which keeps monthly costs low while the line remains open. You're not required to draw the full amount or any amount at all; the line simply stays available. These figures are illustrative; rates and products are subject to change and this is not a commitment to lend.
If you carry a balance of forty thousand dollars at seven percent interest-only, your monthly payment sits around two hundred thirty-three dollars. That payment covers interest but doesn't reduce the principal you owe.
The repayment period: the clock resets
When the draw period ends, two things happen simultaneously. First, you can no longer take new draws—the line closes. Second, the loan converts to a fixed repayment schedule, typically ten to twenty years, and you begin paying both principal and interest. The same forty-thousand-dollar balance on a fifteen-year repayment term at the same rate jumps to roughly three hundred sixty dollars monthly. That's a fifty-four percent increase, and it arrives whether you've prepared for it or not.
Some lenders allow you to make principal payments during the draw period, which reduces the balance before the reset. Others permit you to refinance the HELOC into a new draw period or convert it to a fixed-rate loan, though approval depends on current equity, income, and credit.
Why the structure exists
The two-phase model reflects the revolving nature of the product. During the draw period, the lender can't predict your balance at any given moment, so interest-only payments provide flexibility. Once the line closes, the lender knows the exact payoff amount and can amortize it like a conventional loan.
Borrowers who treat the draw period as indefinite or assume low payments will continue often face payment shock at the transition. The reset is contractual and automatic—it doesn't require notice beyond what's in your original disclosure.
Planning before you open the line
Before opening a HELOC, confirm the length of both periods and whether interest-only payments are required or optional during the draw phase. Ask whether the lender allows early principal payments without penalty and what options exist at the end of the draw period. Build a repayment scenario using your expected balance and a realistic rate to see what the monthly cost will look like after the reset.
Understanding the two-phase structure before you sign prevents surprises a decade later. If you're comparing options or want to model a specific scenario, explore the calculators or start an application to review terms in detail.