How a HELOC Repayment Structure Works
- Draw Period (Years 1–10): You can draw funds as needed up to your credit limit. Monthly payments during this phase are interest-only.
- Repayment Period (Years 11–30): The line of credit closes. You can no longer draw funds, and payments adjust to amortize both principal and interest over the remaining term.
HELOC Payment Phase Comparison Table ($50,000 Borrowed @ 8.5%)
| Phase | Duration | Monthly Payment | Payment Type | Phase Interest Paid |
|---|---|---|---|---|
| Draw Period | Years 1–10 (10 Yrs) | $354.17 | Interest-Only | $42,500 |
| Repayment Period | Years 11–30 (20 Yrs) | $433.91 | Principal + Interest | $54,138 |
| Payment Shock Jump | Year 11 Shift | +$79.74 / month (+22.5%) | Full Amortization | Total Int: $96,638 |
Frequently Asked Questions
How does a HELOC work?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by home equity. During the initial draw period (typically 10 years), you can draw funds and pay interest-only. After the draw period ends, the loan enters repayment (typically 10-20 years) where principal and interest must be fully repaid.
What is HELOC payment shock?
Payment shock occurs when a HELOC transitions from the interest-only draw period to the repayment period, causing monthly payments to significantly increase as principal payments begin.