A home equity line of credit runs in two stages, and the shift between them is where borrowers get hurt. The HELOC draw period and repayment phase work very differently: during the draw period, which typically lasts up to 10 years, you can borrow, repay, and re-borrow up to your credit limit while paying only interest on what you owe. When that window closes, you can no longer draw funds, and your monthly payment climbs — often doubling or tripling — because you now have to pay down principal over a fixed term of 10 to 20 years.
How the Draw Period Works
The draw period is the flexible stage. Your HELOC behaves like a credit card secured by your home: withdraw funds up to your approved limit, pay some or all of it back, and borrow again. Most lenders set this window at 10 years, though some run as short as three to five. You access the money through special checks, a linked card, or online transfers.
During this stage, most lenders require only interest on whatever balance you’ve drawn. Borrow $30,000 on a $100,000 line and you pay interest on $30,000. Pay the balance down to zero and your required payment drops to zero, though some lenders charge an annual fee whether or not you carry a balance.1Consumer Financial Protection Bureau. What Fees Can My Lender Charge If I Take Out a HELOC? Nothing stops you from making voluntary principal payments during the draw period, and doing so is one of the smartest moves for softening the transition later.
The Variable Rate
Most HELOCs carry a variable rate tied to an index — usually the U.S. Prime Rate — plus a margin your lender sets based on your credit profile.2Board of Governors of the Federal Reserve System. H.15 – Selected Interest Rates As of late 2025, the prime rate sits at 6.75%, so a borrower with a 1.5% margin would pay 8.25%. That rate can move every time the Federal Reserve adjusts its benchmark. Federal regulations require your lender to disclose the index, the margin, how rate changes work, and whether a lifetime cap applies.3eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans Find that cap in your agreement. It tells you the absolute worst-case rate you could ever face.
Your Three-Day Right to Cancel
After signing a HELOC agreement, you have until midnight of the third business day to cancel with no penalty and no obligation. To exercise this federal right of rescission, send written notice to your lender by mail or any other written method. The right is considered exercised the moment you mail it, not when the lender receives it. If your lender failed to deliver the required disclosures or the notice of your cancellation right, the three-day window extends to three years. Once you cancel, the lender has 20 calendar days to return any money you paid and release the lien on your home.4Consumer Financial Protection Bureau. 12 CFR 1026.15 – Right of Rescission
When the Lender Can Freeze or Cut Your Line
Your credit limit isn’t guaranteed for the full draw period. Federal law allows lenders to freeze your HELOC or reduce your available credit if the value of your home drops significantly after the account was opened.5Office of the Comptroller of the Currency. Can the Bank Freeze My HELOC Because the Value of My Home Declined? A housing downturn in your area could wipe out equity you were counting on.
Property values aren’t the only trigger. Lenders can also restrict your line if your financial situation deteriorates: a job loss, a spike in your other debts, or a significant drop in your credit score. Missing minimum interest payments is another fast track to a frozen account. If any of this happens, you lose access to unused credit but still owe whatever balance you’ve already drawn.
What Changes When Repayment Begins
When the draw period ends, the HELOC stops behaving like a credit card and starts behaving like a conventional loan. You can no longer withdraw funds. Any principal you repay stays gone. The account balance at that moment becomes a fixed debt you must pay off over the remaining term, typically 10 to 20 years.
This transition is automatic. There’s no new application and no credit check, because the repayment terms were locked in when you originally signed. Federal interagency guidance recommends that lenders begin contacting borrowers six to nine months or more before the end-of-draw date to explain what’s coming.6Board of Governors of the Federal Reserve System. Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Periods If your draw period is winding down and you haven’t heard from your lender, reach out yourself.
Why the Payment Jumps
Your repayment-phase payment is designed to bring the balance to zero by the end of the term. It includes both principal and interest, which is why the jump from interest-only payments feels so steep. A borrower carrying a $50,000 balance and paying around $340 per month in interest during the draw period (at 8%) would see that payment climb to roughly $480 per month on a 20-year repayment term, or about $580 per month on a 15-year term.
Because most HELOCs keep their variable rate through repayment, the monthly amount can shift every time the underlying index moves. A one-percentage-point jump in the prime rate translates directly into a higher payment on your remaining balance. Federal regulations require your lender to disclose how these payments are calculated, including what happens if minimum payments don’t fully pay down the balance.3eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans
Watch for a Balloon Payment
Some HELOC agreements include a balloon payment, meaning the scheduled monthly payments won’t fully pay off the debt by the end of the term. You’ll owe a large lump sum on the final due date instead. Lenders must disclose this upfront and provide an example showing what the balloon would look like on a $10,000 balance.3eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans If your agreement has a balloon term and you haven’t planned for it, you could face a five-figure payment with no warning, or be forced to refinance under whatever market conditions exist at that point.
What Late Payments and Default Look Like
Missing a repayment-phase payment typically triggers a late fee, commonly $25 to $50 depending on the lender. Consistent missed payments put you in default, which can lead to foreclosure. Because a HELOC is usually a second lien behind your primary mortgage, the foreclosure process is more complicated for the lender, since they collect only what’s left after the first mortgage is satisfied. The outcome for you is the same: loss of your home and serious damage to your credit that lasts seven years.
Strategies to Manage the Payment Jump
The payment increase is predictable, which means it’s manageable if you plan ahead. The worst approach is to ignore it until the first higher bill arrives.
- Pay principal during the draw period. Nothing prevents you from making extra payments above the interest-only minimum. Every dollar of principal you knock down now is a dollar that won’t generate payment shock later.
- Lock in a fixed rate before the draw period ends. Many lenders let you convert some or all of your variable-rate balance to a fixed rate during the draw period. You’ll pay a conversion fee, but it eliminates rate risk during repayment.
- Refinance into a new HELOC. Opening a new HELOC to replace the old one resets the clock with a fresh draw period. This buys time, but it delays the paydown and means paying more total interest.
- Refinance into a fixed-rate home equity loan. Converting the HELOC balance into a lump-sum home equity loan gives you predictable payments from day one. Expect closing costs of 2% to 5% of the loan amount.
- Request a loan modification. If you’re facing genuine hardship, contact your lender directly. HELOCs are generally not covered by federal loss mitigation requirements, so there’s no mandated review process. Even so, many lenders would rather adjust your terms than pursue foreclosure on a second lien.7Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures
The six-to-nine-month advance notice period regulators expect lenders to provide is your planning window.6Board of Governors of the Federal Reserve System. Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Periods Use it to run the numbers on each option above. Wait until after the transition and your bargaining position weakens considerably.