The two phases of a HELOC
A home equity line of credit behaves quite differently from a regular loan because it has two distinct phases. During the draw period you can borrow against the line as you need to, and your minimum payment usually covers interest only. Because nothing is being applied to principal, the balance does not fall on its own.
When the draw period ends, the repayment period begins. Now the outstanding balance must be paid off with full principal-and-interest payments over the remaining term. Since the same balance is being amortized over a shorter window than a typical mortgage, the required payment rises — sometimes sharply.
Why the payment jumps
The chart contrasts the small interest-only payment you make while drawing with the much larger payment once repayment starts. This step-up is the single most important thing to plan for with a HELOC.
During the draw years it is easy to treat the line like cheap, flexible cash. But the day repayment kicks in, the budget impact can be jarring if you have not prepared. Knowing the future payment up front lets you decide whether to pay down principal early or set money aside.
Managing the rate and the risk
Most HELOCs carry a variable rate tied to a benchmark, so payments can move even before repayment begins.
- Paying extra principal during the draw period lowers the eventual repayment shock.
- Because the line is secured by your home, missed payments put the property at risk.
- Some lenders offer the option to convert a drawn balance to a fixed rate — worth asking about.
- Rising benchmark rates raise both the interest-only and the repayment figure.
Assumptions and limits
This calculator assumes the full amount is drawn at once and held through the draw period, then amortized at the same rate. Real lines fluctuate as you borrow and repay, and variable rates change over time, so treat the totals as a planning guide rather than a precise forecast. This is general information, not financial advice.
Formula
interest-only = balance·r; repayment = amortized over repayYears×12 monthsFrequently asked questions
- Why does my payment jump after the draw period?
- During the draw period you usually pay only interest, so the balance never falls. When repayment begins you must pay off the full balance with interest over a shorter term, which raises the payment.