A HELOC—or home equity line of credit—is a way for homeowners to tap the equity they have in their house. Like other home equity loans, HELOCs use the home as collateral. They’re unique because they work in two phases: a draw period and a repayment period.
If you’re considering a HELOC, it’s critical to understand the differences between these two periods—and what they mean for your budget. Use this guide to find out more about draw periods, how repayment works, and the variety of available draw options.
In this guide:
- What is a draw period?
- Difference between draw period and repayment period?
- How does the draw period work?
- How much money can I access during the draw period?
- Are there any requirements or restrictions during the draw period?
- Is the repayment amount the same throughout the draw period?
- Can you pay off a HELOC during the draw period?
- Do lenders offer HELOCs with different draw periods?
What is a draw period?
When you get approved for a HELOC, you can access a line of credit and draw from it as needed (much like a credit card) for a certain period. This “draw period” lasts two to 10 years in most cases, but it depends on your lender.
Once the draw period on your HELOC expires, you can no longer withdraw funds. You will then enter the repayment period, when you begin repaying the amount you borrowed—plus interest—to the lender.
What’s the difference between the draw period and the repayment period?
At its simplest, the draw period is when you can use your HELOC funds, and the repayment period is when you pay that money back.
In the draw period, most lenders require interest-only payments—meaning you’ll only pay the interest on what you’ve withdrawn. In the repayment period, you’ll make payments toward both the interest and the principal balance.
Here’s a look at the key differences between these phases:
|Draw Period||Repayment Period|
|Length||2 – 20 years||5 – 30 years|
|Able to withdraw funds?||Yes||No|
|Payment requirements||Interest-only||Interest + principal|
|Interest rate||Usually variable, but some lenders may offer fixed rates||Usually variable, but some lenders may offer fixed rates or may allow you to convert to a fixed rate during repayment|
The end of the draw period is called the HELOC’s maturity date.
How does the draw period work?
During the draw period, you can use your HELOC much like a credit card, withdrawing funds from your account up to your maximum credit limit. This differs from other home equity products, which often offer a lump-sum payment upfront.
Here’s an example of how that might work if you had a $50,000 HELOC with a 10-year draw period:
Year 1: You might withdraw $10,000 to cover roof repairs.
Year 2: You might withdraw $2,000 to cover a medical bill.
Year 7: You could withdraw another $20,000 to buy a car.
In the example above, you would withdraw $32,000 of your available $50,000 during the draw period. With HELOCs, you only pay interest on what you borrow, so limiting your withdrawals to what’s necessary can help keep your long-term costs in check.
Most lenders require interest-only payments during the draw period, so you’ll just cover the interest on what you’ve spent thus far. You can pay extra toward your principal balance to reduce your long-term interest costs. This will also give you the option to withdraw more later since the amount you repay goes back toward your available credit, similar to a credit card.
How much money can I access during the draw period?
Your HELOC depends on your equity, home value, and personal financial situation, including your debt-to-income ratio and credit score. Many lenders will allow you to borrow up to 80% of your home value minus the balance on your mortgage. This percentage is your loan-to-value ratio (LTV).
Take a look at the example in the table below to see how this works:
|Home value||Outstanding mortgage debt||Lender’s max LTV (80%)|
In this case, your line of credit wouldn’t exceed $120,000 ($320,000 minus the outstanding $200,000). Keep in mind you might not qualify for this full amount. Your credit score and other factors also influence what you can borrow.
Are there any requirements or restrictions during the draw period?
Many lenders have rules and restrictions during the draw period. For example, you may need to make an initial withdrawal as soon as you open your HELOC, or the lender might set minimum amounts for payments or withdrawals.
Some lenders may also charge fees for withdrawals or annual maintenance. In some cases, you may be limited to a maximum number of draws.
Is the repayment amount the same throughout the draw period?
During the draw period, most lenders only require interest payments, so these will fluctuate based on how much of your credit limit you’ve spent. Once you enter the repayment period, payments will depend on your balance, your interest rate, and whether you have a fixed or variable rate.
If you have a variable rate, your interest rate will change as often as every month based on the index rate to which it’s tied. For example, if your HELOC is tied to the prime rate, and the prime rate increases, your HELOC rate will increase too, along with your payments.
Your monthly statements should detail whether your interest rate is changing and your next payment amount.
Can you pay off a HELOC during the draw period?
You’ll need to cover any interest you owe on your balance during the draw period, but you can pay more than this if you want. Doing so can reduce long-term interest costs and help you pay off your balance faster. It can also replenish your HELOC credit line, allowing you to borrow more later.
You can pay off your full HELOC balance if you want. Keep in mind you only need to pay back the principal balance (plus any interest you owe), not the full line of credit. If you’re considering this, read the fine print first.
Some lenders charge prepayment penalties, so you may owe extra fees if you pay off the entire balance within a certain period.
Find out more about repaying your HELOC during the draw period.
Do lenders offer HELOCs with different draw periods?
HELOCs vary by lender, so some may offer shorter or longer draw periods. They also may have different withdrawal limits and fees, so make sure you compare your options before deciding on a company.
If you know you’ll need access to funds for many years, you might choose a HELOC with a 15-year or 20-year draw period rather than 10 years. Longer withdrawal periods also might be wise if you intend to cover a recurring cost, such as college tuition or renovations that will take several years.
Here’s a look at how HELOC draw periods vary by lender:
|Lender||Draw Period||Repayment Period|
|Figure||2 – 5 years||5 – 30 years|
|Citizens Bank||10 years||15 years|
|Bethpage FCU||10 years||20 years|
|PenFed||10 years||20 years|
|Truist||10 years||5 – 30 years|
Check out our guide to the best HELOC lenders to start comparing options.