When your HELOC draw period ends, the credit line closes to new borrowing and whatever balance you owe converts into a fully amortized loan with principal-and-interest payments. That switch happens on a date already printed in your original loan agreement. For borrowers who were paying interest only, the monthly bill often climbs 40% to 80% overnight, and the interest rate usually stays variable through the new repayment phase.
The Three Things That Change on the End Date
On the transition date in your loan documents, three shifts happen at once.
You lose access to the line. No more draws, no more re-borrowing, no matter how much of your original credit limit you never used. Whatever you owe on that date becomes the fixed principal you have to pay off. And your monthly payment recalculates from an interest-only figure to a fully amortized principal-and-interest payment sized to retire the balance over the repayment term.
Repayment terms vary by lender and by what you signed. Ten to twenty years is common, though some run as short as five. The shorter the window, the higher the monthly payment, because the same debt is being squeezed into fewer installments.
Federal regulations require your lender to disclose the length of both the draw period and the repayment period, along with how minimum payments will be calculated in each phase, before you ever open the account.1Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans Most lenders also send a written reminder as the transition approaches, showing the new payment based on your current balance and rate. Read it closely when it arrives. Those numbers are your reality for the next decade or two.
How Much Your Payment Actually Jumps
This is the shock most borrowers feel first. Take a $75,000 balance at 8% interest. During the draw period, an interest-only payment runs about $500 a month. Once repayment starts:
- On a 15-year repayment term, the monthly payment climbs to roughly $717. That’s about $217 more per month, a 43% jump.
- On a 10-year term, it climbs to roughly $910. That’s about $410 more per month, an 82% jump.
Both figures assume the rate holds steady at 8%. Because HELOC rates are variable, the actual payment could be higher if the prime rate moves up before or during repayment.
Borrowers who paid interest only for the entire draw period feel the full force of this. Anyone who chipped away at principal along the way faces a smaller balance at conversion and a softer landing. Every dollar of principal you eliminate before the end date is a dollar that isn’t stretched across the repayment schedule.
The Rate Usually Stays Variable
A common misconception is that the interest rate locks in when repayment begins. It typically doesn’t. The variable-rate structure from the draw period continues, tied to the prime rate plus the margin your lender set at origination.2Bankrate. How Fed Moves Impact HELOCs and Home Equity Loans When the Federal Reserve raises or lowers the federal funds rate, prime moves with it, and your payment adjusts.
The exposure is worse during repayment than it was during the draw period. A rate hike during the draw phase only bumped up an interest-only payment. During repayment, the same hike lands on a larger amortized payment that already includes principal, so the dollar impact of each move is bigger. Federal banking regulators have flagged this double exposure, noting that borrowers approaching end-of-draw should evaluate whether they can absorb both the switch to principal-and-interest payments and potential future rate increases.3Federal Reserve. Interagency Guidance on Home Equity Lines of Credit Nearing Their End of Draw Periods
Watch for a Balloon Payment Clause
Not every HELOC converts into an amortized schedule. Some agreements demand the full outstanding balance in a single lump sum on the end date. That’s a balloon payment, and it can mean owing tens of thousands of dollars all at once.
Balloon-structured HELOCs are less common now because any loan built this way is classified as a non-qualified mortgage, which limits who offers them. But older agreements signed years ago may still contain the clause, and lenders are required to disclose the possibility of a balloon payment in the initial account disclosures.1Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans Check your paperwork. If you have one, start planning a refinance well before the due date. Counting on a last-minute refi is a gamble that doesn’t always work out.
What Happens If You Can’t Make the New Payments
A HELOC is secured by your home. If you fall behind during the repayment phase, the lender can foreclose, even if your first mortgage is current.4Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit The HELOC lender holds a lien on your property and has the same enforcement tools as any mortgage holder.
Procedures vary by state, but the pattern is a notice of default after a set number of missed payments, a cure period during which you can catch up, and, if the default continues, a scheduled sale. HELOC lenders often pursue foreclosure only when there’s enough equity in the home to cover what they’re owed after the first mortgage is paid off. If there isn’t, some lenders instead seek a deficiency judgment in court to collect the remaining balance through wage garnishment or bank levies, though state law controls whether that’s available.
The point is that HELOC debt is not unsecured. Ignoring it puts your home at risk. If you can see the payment shock coming and know you can’t absorb it, the options below are far better moves than defaulting.
Your Options Before or At the Transition
You have several paths, and the right one depends on your balance, your equity, your credit, and how much of the increased payment you can actually absorb.
Pay Down Principal During the Draw Period
The cheapest move requires no new loan, no closing costs, and no negotiation. Extra principal payments during the draw phase reduce the balance that eventually amortizes. A few hundred dollars a month above the interest-only minimum can meaningfully soften the eventual jump. This is the only approach that avoids both the shock and the cost of a new loan product.
Refinance Into a Fixed-Rate Home Equity Loan
Converting the balance into a fixed-rate home equity loan gives you a predictable monthly payment and removes the variable-rate risk that otherwise follows you into repayment. Closing costs generally run 2% to 5% of the loan amount, so on a $75,000 balance expect roughly $1,500 to $3,750 out of pocket or rolled into the new loan.
Cash-Out Refinance on Your First Mortgage
A cash-out refinance replaces your primary mortgage with a larger one, using the extra proceeds to pay off the HELOC. You end up with a single payment, often at a lower rate than the HELOC. The tradeoff is that you’re resetting the clock on your first mortgage and paying full-refinance closing costs, which tend to be higher than on a standalone home equity loan.
Use Your Lender’s Fixed-Rate Conversion Feature
Many lenders let you lock all or part of your variable-rate HELOC balance into a fixed-rate segment within the existing loan. The converted portion gets its own repayment schedule, and you skip the closing costs of a separate refinance. This is usually limited to one or two uses over the life of the loan, and the fixed rate may carry a premium over market rates. Check your agreement or ask your lender whether the feature is available.
Request a Loan Modification
You can ask your current lender to modify the repayment terms directly, usually by extending the repayment period so the principal spreads over more years and the monthly payment drops. Lenders aren’t obligated to agree and typically want to see documented hardship. You’ll pay more total interest, but the monthly bill stays manageable and you avoid default.
Open a New HELOC
With enough equity and solid credit, you can open a new HELOC to pay off the old one and get a fresh draw period. This works if your finances have improved or you have a real ongoing need for flexible funds. It’s a poor plan if you’re just deferring a balance you can’t afford, because the same transition will hit again in another decade.
A Quick Note on Credit and Taxes
During the draw period, a HELOC usually reports as revolving debt, so a high balance relative to the credit limit can weigh on your utilization ratio and your score. The standard guidance is to keep revolving utilization below 30%.5Equifax. Installment vs. Revolving Credit and Key Differences Once the account converts to repayment-only, credit bureaus may reclassify it as installment debt, which is treated differently in the utilization calculation. For some borrowers that reclassification actually helps the score. On-time payments during repayment continue to build your credit history, and missed payments damage it.
On taxes, HELOC interest is deductible only when the borrowed funds were used to buy, build, or substantially improve the home securing the loan. Interest on funds used for credit card payoffs, tuition, or other purposes doesn’t qualify. When funds were split, only the home-improvement portion is deductible. Total deductible mortgage debt combining your first mortgage and HELOC is capped at $750,000 for loans taken out after December 15, 2017, or $375,000 if married filing separately.6Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Confirm the current-year rules in IRS Publication 936 or with a tax professional before you file.