HELOC Draw and Repayment Rules
The draw period is the easy part. What happens when it ends is where borrowers get caught.
By Mike Basti, Licensed Mortgage Broker (NMLS #377740) · Updated September 2026
The Two Phases
A HELOC has a draw period and a repayment period, and they behave completely differently.
During the draw period — usually ten years — you can borrow, repay and re-borrow freely up to the limit, and most lenders require interest-only payments. When it ends, the line closes to new draws and the outstanding balance amortises over the repayment period, commonly ten to twenty years.
| Draw period | Repayment period | |
|---|---|---|
| Typical length | 10 years | 10–20 years |
| Can you borrow? | Yes, up to the limit | No |
| Minimum payment | Interest only, usually | Principal and interest |
| Rate | Variable, prime + margin | Variable, sometimes convertible to fixed |
| Balance direction | Can rise | Must fall |
The Payment Shock, Quantified
This is the number to internalise before you draw. A $150,000 balance at 8% costs $1,000 a month during an interest-only draw period. Amortised over fifteen years at the same rate, the payment becomes roughly $1,434.
Over ten years the difference is $434 a month arriving in a single step, on a date fixed at closing. Borrowers who treated the interest-only payment as the real cost are the ones caught out.
Plan the recast from day one
Put the recast date in your calendar the day the HELOC closes. Three sensible options exist and all of them need lead time: pay the balance down before recast, refinance the HELOC into a fixed second, or fold it into a first-mortgage refinance. Waiting until the payment jumps removes the cheapest options.
Rate Mechanics
HELOC rates are variable and tied to the Wall Street Journal prime rate plus a lender margin, so they track Federal Reserve policy rather than the 30-year mortgage market. Prime moves the day after a Fed change and your payment follows within a billing cycle.
Most HELOCs carry a lifetime cap, often 18%, and some carry a floor below which the rate cannot fall. Some lenders offer a fixed-rate conversion option on part of the balance — useful, and worth asking about before you need it.
Fees and Conditions to Check
The rate is not the whole cost. Common terms worth reading before signing include annual fees, inactivity fees where the line goes unused, early closure fees within the first two or three years, minimum draw amounts at closing, and the lender’s right to freeze or reduce a line if property values fall or your credit deteriorates.
That last one surprises people. Lenders can and do reduce lines during downturns, which is why a HELOC held purely as emergency liquidity is less reliable than it appears.
Interest Deductibility
Interest on a HELOC is generally deductible only when the funds are used to buy, build or substantially improve the home securing the loan. Using a HELOC to consolidate credit cards or fund a business does not qualify under current rules. Confirm with a CPA — this is a tax question, not a lending one.
Related Pages
Frequently Asked Questions
How long is a HELOC draw period?
Usually ten years. During that time you can borrow, repay and re-borrow up to the limit, and most lenders require interest-only payments. When it ends the line closes to new draws and the balance amortises over a repayment period of ten to twenty years.
What happens when the draw period ends?
The line closes to new borrowing and the outstanding balance begins amortising, which raises the payment sharply. A $150,000 balance at 8% costs about $1,000 a month interest-only; amortised over fifteen years it becomes roughly $1,434 — a $434 monthly increase arriving in one step.
How do I avoid HELOC payment shock?
Plan for the recast date from the day you close. Pay the balance down before it arrives, refinance the HELOC into a fixed second mortgage, or fold it into a first-mortgage refinance. All three need lead time, so waiting until the payment jumps removes the cheapest options.
Are HELOC rates fixed or variable?
Variable, tied to the Wall Street Journal prime rate plus a lender margin, so they move with Federal Reserve policy rather than the 30-year mortgage market. Most carry a lifetime cap around 18%, and some lenders offer a fixed-rate conversion on part of the balance.
Can a lender reduce or freeze my HELOC?
Yes. Most agreements permit the lender to freeze or reduce a line if property values fall or the borrower’s credit deteriorates, and lenders did so widely in past downturns. It is a reason to treat a HELOC as less reliable than it appears when held purely as emergency liquidity.
Is HELOC interest tax deductible?
Generally only when the funds are used to buy, build or substantially improve the home securing the loan. Using a HELOC to consolidate credit card debt or fund a business does not qualify under current rules. Confirm the treatment with a CPA.
Educational information only, not a commitment to lend. Program terms vary by lender and are subject to credit approval. Figures reflect 2026 program limits. Sources: FHFA, HUD, VA, CFPB, California DRE. Sponsored by Save Financial, Inc. (NMLS #377740). California DRE #01875766. Equal Housing Lender.
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