Your HELOC’s draw period ending does not have to catch you off guard. Here is what happens to your payment, when it happens, and the options to line up before repayment begins.
A home equity line of credit often feels easy to live with during the draw period, when the minimum payment may cover little more than interest. That changes when borrowing stops and repayment begins. This timeline walks through the months before and after the switch, so you know when the payment jumps and what to do first.
Draw Period vs. Repayment Period: The Two Phases of a HELOC
A HELOC is an open-end line of credit that lets you borrow repeatedly against the equity in your home. During the draw period, often about 10 years, you can borrow up to your limit, repay and borrow again. Many plans set minimum payments based on your current balance, sometimes interest only. When the draw period ends, you enter the repayment period. You can no longer draw, and your lender sets a schedule to repay the full balance, often over ten or 20 years. The Consumer Financial Protection Bureau cautions that payments are often significantly higher once repayment begins, and some plans require the whole balance right away.
12 to 6 Months Out: Find Your End Date and Confirm Your Terms
- Find your maturity date. Your agreement states when the draw period ends.
- Confirm the repayment terms. When you applied, your lender had to disclose the length of the draw and repayment periods, how your minimum payment is calculated, and how the annual percentage rate can change. Under Regulation Z, the creditor must also give payment information for the repayment phase.
- Ask whether your plan converts to a balloon. Some agreements require the whole balance when repayment begins. If yours does, the end of the draw period is a payoff deadline, not just a higher bill.
- Find out whether you can lock your rate. Some plans let you switch all or a portion of what you owe to a fixed rate, which usually costs more than the variable rate but makes the payment easier to predict.
- Ask what notice to expect. Federal banking agencies have issued guidance encouraging lenders to notify borrowers ahead of the reset.
Our checklist for what to check before you sign a HELOC agreement lists the terms to confirm in writing.
6 Months Out: How Much Your Payment Changes
The jump comes from moving from interest-only to principal and interest. At the same interest rate, that step-up commonly raises the payment by about 20 to 25 percent; if rates rose while you were drawing, the increase can reach roughly 35 percent or more. The exact dollar amount depends on your balance, your rate and the length of your repayment period, which is why an estimate from your servicer beats any rule of thumb.
Most HELOCs carry variable rates, so payments may change from month to month with the index during both phases.
When the Draw Period Ends: Amortized Payments or a Balloon
When the draw period closes, one of two things happens.
Most plans convert the balance to an amortizing loan, a fixed schedule of principal and interest payments that pays the line off by the end of the repayment period. Your servicer will tell you the new amount and due date.
Some plans instead demand the entire balance at once. Federal Reserve research found that HELOCs reaching end of draw had significantly higher default rates in the following months, and lines with a balloon feature defaulted more often even after accounting for borrower characteristics. If your agreement has a balloon, treat the end date as firm and arrange financing months ahead.
If the New Payment Does Not Fit Your Budget
You have options, and they narrow as the deadline passes.
- Call your lender early. Regulators’ guidance says lenders and borrowers generally benefit from working together to avoid unnecessary defaults. Ask what help your servicer offers before you miss a payment.
- Ask about changing the terms. The guidance expects lenders to base eligibility and payment terms on a borrower’s ability to repay. Ask whether your plan can be extended or restructured, in writing.
- Look at refinancing. You may be able to replace the HELOC with a new loan or fold it into a refinance of your first mortgage. When refinancing your mortgage makes sense explains the trade-offs and costs.
- Pay the balance down before the deadline. Draw-period payments are often based on your current balance, so extra principal now shrinks the later payment.
- Get outside help. A housing counselor or other qualified professional can help you work through the numbers and compare your choices.
Careful
Your home secures the HELOC. Miss payments and the lender could move to take the house, so raise any trouble with your servicer before you get behind rather than after.
A Month-by-Month Checklist for the Transition
- 12 months out: confirm your maturity date and repayment terms from your agreement and statements.
- 9 months out: ask your servicer for the estimated repayment payment in writing.
- 6 months out: run your budget against the new number and explore a fixed-rate conversion or extra principal payments.
- 3 months out: if refinancing, start applications and gather income documents.
- Final month: confirm the amount and due date of your first repayment payment.
- After the switch: pay on time, and call your lender right away if the amount does not fit.
Related guides
- HELOC or Home Equity Loan? How They Differ: how a lump-sum fixed-rate loan compares if you want predictable payments from the start.
- A Timeline for Falling Behind on Your Mortgage: what happens month by month when payments slip.
The short version
- A typical HELOC has a draw period of about 10 years with interest-only minimums, then a repayment period of ten or 20 years with much higher, amortizing payments.
- At the same interest rate, moving from interest-only to principal and interest commonly raises the payment by about 20 to 25 percent, and more if rates rose while drawing.
- Some plans require the whole balance when the draw period ends, so check your agreement for a balloon clause well before the deadline.
- Federal regulators urge lenders to notify borrowers before the reset, so call your servicer early and ask for your estimated repayment payment in writing.
- Options include a fixed-rate conversion, extra principal payments, refinancing and restructuring with your lender; contact your servicer before you miss a payment.
Readers also ask
How much will my HELOC payment go up when the draw period ends?
At the same interest rate, the move from interest-only to an amortizing payment commonly raises the bill by about 20 to 25 percent. If rates rose during your draw period, the increase can be larger.
Will my lender warn me before the repayment period starts?
Your agreement sets the notice terms, and federal banking agencies have issued guidance encouraging lenders to communicate with borrowers ahead of the reset. Ask your servicer for the estimated new payment in writing.
Can I keep borrowing after the draw period ends?
No. Once the draw period ends, you can no longer draw funds, and the remaining balance must be repaid on the schedule in your agreement.
What if I cannot afford the new payment?
Call your servicer before missing a payment. Options can include restructuring the loan, refinancing, a fixed-rate conversion or paying the balance down, and a housing counselor or other qualified professional can help you compare them.
This guide is general information about U.S. mortgages, not financial, tax or legal advice. Loan terms depend on the lender and on your credit, income and property, so confirm the details with your lender, and see consumerfinance.gov for official guidance.
