What are HELOC draw and repayment periods?

This article is for educational purposes only. JPMorgan Chase Bank, N.A., does not currently offer home equity lines of credit (HELOCs) in all states. Please talk with a Home Lending Advisor to see if HELOCs are available in your state. Any information described in this article may vary by lender.

Quick insights

• During the HELOC draw period, you can borrow, repay and borrow again up to your credit limit, often 3-10 years, depending on the lender.
• You may have the option to pay interest on the amount you’ve borrowed during the draw period.
• Once the draw period ends, you enter the repayment phase, where both principal and interest are due, often leading to higher monthly payments.

A HELOC draw period provides a set time when you can access funds based on your home’s equity. Understanding this period is vital, as it impacts how and when you’ll need to start repaying the borrowed amount. In this article, we’ll explore what happens during the draw period and how to prepare for the phase that follows: repayment.

What is the HELOC draw period?

The HELOC draw period is the initial phase of a home equity line of credit (HELOC), usually lasting 3-10 years. During the draw period, you are allowed to access the funds up to your credit limit, making it a flexible borrowing option (similar to a credit card). ’During the draw period, you’re usually only   required to make interest payments on the amount you’re  borrowed.

How does a HELOC draw period work?

During the HELOC draw period, you have the ability to borrow funds as needed, up to your credit limit. You can typically withdraw a credit card linked to your HELOC or online transfers—options vary by lender. The amount you borrow during this period will determine your monthly interest payments, which are usually based on a variable interest rate.

Managing HELOC funds during the draw period

You can help get the most out of your HELOC draw period by understanding how to use and manage this flexible borrowing tool. Here are some strategies:

• Borrow only what you need: While the HELOC draw period allows you to borrow up to your credit limit, it may be a good idea to only take out what you actually need. Plan ahead for major expenses and withdraw funds gradually rather than all at once, if possible.
• Pay interest payments on time: Although you’re only required to make interest payments during the draw period, it’s vital to make those payments consistently. This helps to avoid late fees and keep your credit in good standing.
• Minimize borrowing costs by paying down the balance: Instead of paying interest only, any payment beyond the minimum you make during the draw period will decrease your principal balance and save you money on interest accumulation.  
• Take advantage of low-interest rates: Many HELOCs have variable interest rates, meaning they can fluctuate over time. Consider borrowing for necessary expenses, investments or debt consolidation.

What is the HELOC repayment period?

The repayment period begins once the HELOC draw period ends. It marks the phase when you must start repaying both the principal and the interest. Here are several key details to know:

• No access to funds: You can no longer withdraw funds during the repayment period. Your HELOC is essentially closed, and the focus is on paying down the balance.
• Payment increase: Monthly payments will rise because you’re now paying both the principal and the interest.
• Interest rate adjustment: If your HELOC has a variable interest rate, it may continue to change during the repayment period. Alternatively, you may be given the option to lock in a fixed rate, which can offer stability in your monthly payments.
• Payment schedule: Your lender will set a repayment period for your HELOC, such as 10 years. Along with the interest rate, the length of the repayment period will help calculate a monthly payment. Each payment will cover a portion of both the principal and interest. Following the schedule will pay the amount you borrowed, plus interest, in full. 
• Potential for balloon payments: Depending on the structure of the loan, you may face larger “balloon payments” toward the end of the repayment period, especially if you have an interest-only draw period.

In summary

The HELOC draw period is a critical phase of the home equity line of credit that gives you access to borrow funds, typically 3-10 years. During this time, you can withdraw, repay and borrow again, offering you financial flexibility when you need it most. It’s important to plan ahead for what happens once the draw period ends, as you’ll enter the repayment phase. Whether you’re paying off debt or financing a project, a HELOC could help, but knowing when and how to manage that debt is the key to making the most of it.