How Does HELOC Repayment Work?

A HELOC — or home equity line of credit — is sort of like a credit card for your house. It turns a portion of your home equity into a line of credit, allowing you to withdraw money from and spend on whatever you want.

This differs from home equity loans and cash-out refinances, which give you one lump sum payment at the beginning and no more. A HELOC lets you use some money, pay it back, borrow more, and so on.

How long are HELOC loans?

HELOC term lengths are usually 30 years, though that doesn’t mean you have 30 years to use the credit line. Instead, HELOC terms are divided into the draw period and the repayment period.

HELOC Draw Period

The HELOC draw period is the period you have to use the credit line, typically 10 years. This means you have 10 years (or whatever period you agreed to) from the day you close on the credit line to spend the money.

During the draw period, you only have to make interest payments on the money you take out. If you don’t use any money, you won’t have any payments due.

Can you repay a HELOC during the draw period?

Yes, you can make repayments during a HELOC’s draw period. You’re only required to make interest payments during this time, but you have the option to pay down the principal balance as well.

Making principal repayments during the draw period can reduce the overall amount you owe and potentially lower your future monthly payments during the repayment period. Paying down the principal during the draw period can free up more credit for future borrowing within the draw period limit.

HELOC Repayment Period

The repayment period, usually the last 20 years of the HELOC term, is when you are required to start repaying the balance to your lender. You cannot withdraw any money during the repayment period.

You’ll typically repay the money via a set monthly payment for the rest of the loan’s term. In rare cases, you’ll owe a balloon payment at the end of your repayment term— meaning you’ll need to pay a larger balance simultaneously.

Remember that HELOCs typically have variable interest rates, so your interest rate can change — both during the draw period and the repayment period.

How does HELOC repayment work?

Here’s a HELOC repayment example to help illustrate how it all works:

Say you take out a $30,000 HELOC at a 9% interest rate right now. Shortly after, you use $10,000 to repair your roof and renovate your basement. You leave the rest of the credit line untouched. In this scenario, you only pay 9% in interest each month on $10,000 (or $750 per month) until you either repay your balance in full or your draw period ends in 2034.

Once your 10-year draw period ends, you enter the full repayment period. Your lender amortizes your remaining balance and interest and spreads it out over even monthly payments for the remaining 20 years of your HELOC. You then make payments each month until you’ve paid it all off. If you sell the home, you can also use the sale proceeds to pay off the balance all at once.

Frequently Asked Questions About HELOC Repayment

Do you have to pay back a HELOC?

Yes, you have to pay back a home equity line of credit — but only what you actually use. If you take out a $50,000 HELOC but only use $10,000 of it, you’d only have to repay the $10,00, plus interest.

How does paying back a HELOC work?

HELOCs are divided into two periods: a draw period and a repayment period. In the draw period, you can use the money from your HELOC as you wish, only making interest payments on what you withdraw and haven’t repaid. When you enter the repayment period (usually after 10 years), you will begin making full principal and interest payments until the balance is paid off.