Thinking about tapping into your home equity? With a home equity line of credit (HELOC), you can borrow as needed and potentially make interest-only payments for several years. This introductory phase, called the draw period, typically lasts around five to 10 years and gives you flexible access to funds — but it also comes with repayment risks that can catch borrowers off guard.
You can withdraw and repay funds as needed during a HELOC’s five- to 10-year draw period.
Jump to insightMaking extra payments during the draw period can reduce long-term costs.
Jump to insightDefaulting on a HELOC can lead to foreclosure, and payments can rise sharply once the repayment period begins.
Jump to insightWhat is a HELOC draw period?
A HELOC draw period refers to the number of years you can withdraw funds from your home equity line of credit. During this time, you are typically required to make interest-only payments, though some lenders may require principal and interest payments. Like with a credit card, you can borrow and repay the loan as you wish, as long as your balance doesn't exceed the total credit limit.
HELOC draw periods typically last around five to 10 years. However, draw and repayment periods can vary by bank.
"Ten years is standard, but draw periods can range from five to 15 years depending on the lender,” said Randall Yates, co-founder of VA Loan Network. “Some hybrid HELOCs recast early or adjust credit limits mid-draw based on property values or credit changes, which many borrowers don’t anticipate."
» RELATED: Fixed-rate HELOCs: a cross between HELOCs and home equity loans
How do HELOC repayment terms work?
HELOCs are split into two periods: the draw period and the repayment period. Each has its own repayment terms. During the draw period, you typically don’t need to pay back the principal, only interest. However, you can choose to make additional payments to reduce the principal balance, which will lower your overall costs since a smaller balance accrues less interest.
You’ll save more in interest in the long run if you make extra payments during the draw period.
Once the draw period ends, the repayment period begins. You’ll start making both principal and interest payments. These payments are usually higher than during the draw period since you’re now required to pay down the full balance. Also, keep in mind that HELOCs typically have variable rates, so your payment can increase or decrease as market rates fluctuate.
HELOC draw and repayment example
For example, let's say you have a $25,000 HELOC with a 10-year draw period and a 20-year repayment period. During the first 10 years, you can borrow up to your $25,000 credit limit, and you may be able to make interest-only payments. So, if you were to only borrow $10,000, you’d only need to pay interest on that amount.
After that, the draw period ends, and you’ll start repaying both principal and interest. Your minimum payment will be calculated based on the remaining balance spread out over the 20-year repayment period.
So, let's say you borrow that $25,000 at an annual percentage rate (APR) of 8.5%. During the draw period, your payment would be about $177. This would cover interest only and wouldn’t reduce the balance. After 10 years, the payment would jump to about $216 since you’d begin repaying the $25,000 balance over the remaining 20-year term.
How to manage a HELOC effectively
As with any loan, you'll want to ensure that you’re not taking on more debt than you can easily repay. Here are some tips for managing a HELOC:
Keep your balance as low as possible
To ensure that you don't find yourself with an unaffordable payment, keep your balance low.
"Treat it like a mortgage, not a credit card,” Randall Yates said. “Set a payoff plan during the draw period, keep usage below 75% of your limit and build a ‘HELOC buffer’ savings fund. If variable income is involved, automating extra payments helps offset rising interest costs over time."
Be mindful of how you use the funds
If you’re using a HELOC to pay off other debts, such as consolidating credit card debt, you may end up in even more debt than you started with. If you are considering this option, ensure that you have a plan to stop accruing additional debt while still paying off your HELOC.
It’s also best to avoid using the funds for emergencies.
"Don't rely on HELOCs for emergencies; avoid drawing late in the term, and monitor home equity to prevent unexpected line reductions,” Yates said. “Limit use to planned, repayable expenses — not lifestyle inflation.”
Make additional payments if possible
Consider making additional principal payments during the draw period, even if you aren't required to do so. Extra payments will help keep your overall balance down, thus lowering your overall costs. Plus, having larger payments in your budget from the start will mean the higher payments during the repayment period will be less of a shock.
Figure out future payments
If you’re concerned about your future payments, there are some proactive steps you can take.
"Request a future amortization schedule by year seven to prep for the payment jump,” Yates said. “If that looks unmanageable, refinance or convert part of the HELOC to a fixed-rate segment early. In a crunch, consider transferring part of the balance to a personal loan with fixed terms.”
» MORE: How to refinance your HELOC
What are the potential risks of a HELOC?
HELOCs can be especially risky since many HELOCs only require interest-only payments during the draw period.
Foreclosure if you default
The biggest risk of a HELOC is that the bank can foreclose on your home if you default on the loan.
"HELOC lenders can sue for a deficiency or place a lien timed to home appreciation,” Yates said. “For investment properties, defaults may trigger personal judgments, bypassing asset protection."
Unpredictable rates and payments
Most HELOCs have a variable interest rate, so interest rates and payments can change at any time. If interest rates rise, your payment will likely follow, potentially leading to an unexpected increase in costs. If interest rates rise just as the repayment period is kicking in, then your payment could end up being more than you can afford.
Borrowing more for tax reasons
Another common risk is borrowing more than you should simply because the interest might be tax deductible. According to the Internal Revenue Service (IRS), you can deduct the interest on a HELOC if you use the funds to buy, build or substantially improve your home.
While the potential tax break can make the loan feel more affordable, it won’t reduce the total amount you owe or the risk of not being able to make payments. You also won’t be able to deduct the interest if you use the funds for certain reasons, such as paying off credit card debt.
FAQ
How long is a typical HELOC draw period?
A HELOC draw period is typically 10 years with a 20-year repayment period. This means you can use the line of credit to withdraw and repay as needed, up to the credit limit. After the draw period ends, you must repay the remaining balance over 20 years.
What happens if I can't repay my HELOC?
If you don't make the minimum payments on your HELOC for a certain amount of time, the bank can foreclose on your home. If you find that you are unable to make your payment, contact the lender immediately. They may be able to work with you.
Are there penalties for early repayment of a HELOC?
Some banks may charge early repayment penalties on HELOC accounts, while others do not. Most prepayment penalties are typically a percentage of the loan balance. It’s best to look for prepayment penalties in the loan terms before signing the agreement.
What are the costs associated with a HELOC?
Some potential costs that can be associated with HELOCs include closing costs, origination fees, application fees, annual fees, inactivity fees, conversion fees and cancellation fees. Beyond these fees, you’ll owe interest on the amount you borrow.
Can I repay a HELOC during the draw period?
Yes, you can start repaying the principal for a HELOC during the draw period. If you’re able to do this, this is typically a better option than waiting until the repayment period since you’ll pay less interest over time.
Bottom line: Should you open a HELOC?
If you're disciplined about borrowing during the HELOC draw period, make extra payments early and understand how the repayment period will affect your budget, opening a HELOC may be a smart option. But if you’re not prepared for the shift in payment structure during the repayment period, the draw period can lead to financial strain later on.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Consumer Financial Protection Bureau, “What Fees Can My Lender Charge if I Take Out a HELOC?” Accessed May 29, 2026.
- Internal Revenue Service, “Is Interest Paid on a Home Equity Loan or a Home Equity Line of Credit (HELOC) Deductible?” Accessed May 29, 2026.
