Repaying a home equity line of credit happens in two stages. During the draw period, which usually runs up to ten years, you can borrow against the line and your minimum monthly payment covers only the interest that has accrued. When the draw period ends, the line converts to a standard amortized loan for a repayment period that often lasts fifteen to twenty years, and your monthly payment jumps to include principal as well as interest. The size of that payment depends on your balance, your interest rate, and the length of the repayment term set in your loan agreement.
The Two Phases of HELOC Repayment
Your loan agreement, signed at closing, lays out the length of your draw period, the date the repayment period begins, and how each month’s charge is calculated. Find the draw period expiration date first. That’s the day your payment structure changes.
Draw Period: Interest-Only Payments
During the draw period, most lenders require only interest each month. You can borrow, repay, and borrow again up to your credit limit, similar to a credit card. The math is simple: multiply your outstanding balance by your annual interest rate, then divide by twelve. A $50,000 balance at 7% APR produces a monthly interest charge of roughly $292. That number resets each billing cycle based on what you currently owe and the current rate.
Because these payments touch none of the principal, your balance doesn’t shrink unless you choose to pay extra. Whatever you owe on the last day of the draw period is what carries into repayment.
Repayment Period: Principal and Interest
Once the draw period ends, you can no longer borrow against the line. Your monthly payment now includes principal and interest spread across the remaining term, and your lender will send an updated amortization schedule showing how each payment is split and when the balance reaches zero.
The jump can be steep. A $50,000 balance that cost about $292 a month in interest-only payments at 7% climbs to roughly $449 a month on a fifteen-year amortization at the same rate. If your rate rose during the draw period, the increase is larger still.
How Your Interest Rate Affects the Payment
Most HELOCs carry a variable rate calculated by adding a fixed margin to a benchmark index, usually the U.S. Prime Rate. If Prime is 8.50% and your margin is 2%, your rate is 10.50%. Because the index moves with market conditions, your monthly bill can change from one cycle to the next. Your periodic statement identifies the index and margin along with the current balance and how charges were calculated.1eCFR. 12 CFR 1026.7 – Periodic Statement
Federal rules require lenders to disclose a lifetime cap on the interest rate that can be charged over the life of the plan.2eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans Some agreements also include periodic caps that limit how much the rate can move between adjustments. Both figures let you estimate a worst-case monthly payment.
Some lenders offer a fixed-rate conversion feature that lets you lock all or part of your variable-rate balance at a fixed rate during the draw period.3U.S. Bank. Home Equity Line of Credit (HELOC) With a Fixed-Rate Option The locked portion converts to principal-and-interest payments at a predictable rate while any remaining unlocked balance keeps floating. This option is typically available only during the draw period, not after repayment starts, so ask your lender early if rate increases concern you.
Ways to Make Your Payment
Most lenders accept payments through several channels:
- Online banking through the lender’s portal, linked to a checking or savings account, for one-time or recurring payments.
- Automatic transfers set up to deduct the payment each month on a fixed date.
- Phone payments authorized with your bank account information.
- Mail. Send a check or money order with the payment coupon from your billing statement and your account number on the memo line. Allow several business days so it arrives before the cutoff.
Whatever the channel, if you’re paying more than the minimum, confirm the extra amount is being applied to principal rather than held as a credit toward future interest. Some lenders require you to specify this each time you send an additional payment.
Paying Down Principal Early
You don’t have to wait for the repayment period to start reducing what you owe. Because a HELOC charges interest on your outstanding balance, every dollar of principal you pay down during the draw period immediately lowers the following month’s interest charge. Paying extra also means you enter the repayment period owing less, which lowers the monthly payment for the entire repayment term.
You can also pay the full balance off at any point. Most HELOC agreements don’t include prepayment penalties, but that isn’t universal. Prepayment penalties, if they exist, must be disclosed in your initial agreement.4Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans Check your loan documents for any early-termination or prepayment fees before you write a large check.
Another route is a cash-out refinance that rolls both your primary mortgage and your HELOC into a single new fixed-rate loan. Refinancing costs typically run 2% to 5% of the new loan amount, and most lenders cap cash-out refinances at 80% of your home’s current value. It works best when the interest savings or the payment predictability justify the closing costs.
If Your HELOC Has a Balloon Payment
Some HELOC agreements skip a gradual repayment period and instead require the full principal in a single lump sum on the maturity date. Your original disclosures will show whether your plan is structured this way.2eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans
How far in advance the lender must remind you depends on your contract and state law; some states require at least 90 days’ notice. The notice will state the exact payoff figure, and payment is usually made by wire transfer or cashier’s check. Missing a balloon payment is treated as a default and can lead to foreclosure, so if you have a balloon-structured plan, start planning for the payoff or a refinance well before the date arrives.
Selling the Home Before the HELOC Is Paid Off
A HELOC is secured by a lien on your property, so the balance has to be paid in full before ownership can transfer. You can’t carry the line to a new property or keep it open after the sale. At closing, the title company pays off the primary mortgage first, then uses the remaining sale proceeds to pay off the HELOC. Anything left after both loans and closing costs goes to you. If the proceeds don’t cover both debts, you’ll need to bring the difference to closing.
If You Can’t Make the Payment
Missing even the interest-only minimum triggers late fees and a negative mark on your credit report. Your lender also has the right to terminate the plan and demand immediate repayment of the entire outstanding balance if you fail to meet the terms of your agreement.4Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans Because the debt is secured by your home, an unresolved default can lead to foreclosure.
Call your lender before you fall behind. Most prefer working out a solution to pursuing foreclosure, and a few options may be on the table depending on your situation:
- A loan modification permanently changes one or more terms, such as extending the repayment period or reducing the rate, to lower the monthly payment.
- Forbearance temporarily pauses or reduces payments through a short-term hardship. You repay the missed amounts afterward, either in a lump sum or on a structured schedule.
- A repayment plan lets you catch up on past-due amounts by adding a portion to each regular payment over a set period.
- A cash-out refinance can spread the balance over a longer term at a fixed rate, though it comes with closing costs.
If your lender is unresponsive or you’d like help evaluating the options, a HUD-approved housing counselor can provide free guidance.
Whether the Interest Is Tax-Deductible
HELOC interest may be deductible, but only if you used the borrowed money to buy, build, or substantially improve the home that secures the loan.5Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Money spent on credit card debt, medical bills, tuition, or a vacation doesn’t qualify, regardless of the loan type.
For loans taken out after December 15, 2017, the deduction applies to the first $750,000 of combined mortgage debt ($375,000 if married filing separately), and your HELOC balance counts toward that limit along with your primary mortgage. “Substantially improve” generally means projects that add value, extend the home’s useful life, or adapt it for a new use — kitchen renovations, additions, roof replacements. Routine maintenance like a repair or a repaint typically doesn’t qualify. To support the deduction, keep invoices, contracts, and receipts tying each HELOC draw to a specific improvement project.