Your HELOC Draw Period Is Ending: 6 Options Before the Payment Jumps

Many home equity lines of credit (HELOCs) come with a 10-year draw period of interest-only payments. When it ends, you can no longer borrow, and the balance converts into a loan you must repay with principal and interest, usually over 10 to 20 years.

For many borrowers, that switch means a sudden, permanent jump in the monthly bill. If yours is coming up, here’s what happens and what you can do.

How big is the jump?

Take a $60,000 balance at 8.25%:

A shorter repayment period, a larger balance or a higher rate all make the jump bigger. And because most HELOC rates are variable, your payment can still change during repayment. Model your own numbers with the HELOC payment calculator.

First, find your exact terms

Before choosing an option, pull out your HELOC agreement and recent statements and confirm:

• When the draw period ends, and how long the repayment period lasts.
• How the repayment payment is calculated: fully amortizing, or something else.
• Your rate formula (index plus margin) and any rate caps.
• Whether a fixed-rate conversion or lock option is available.
• Any fees for closing the line, locking a rate or paying it off early.

Option 1: Start paying principal now

If the draw period hasn’t ended yet, the cheapest fix is often simply to pay more than interest-only for the months or years that remain. Every dollar of principal you pay now shrinks the balance that will be amortized, and with it the eventual payment.

Option 2: Lock all or part of the balance at a fixed rate

Many lenders let you convert some or all of your HELOC balance into a fixed-rate installment loan within the line. That protects you from rate increases and gives you a predictable payment. Ask about the lock rate, how long the fixed term runs, and any lock fee.

Option 3: Refinance into a new HELOC

A new HELOC can pay off the old one and restart the draw period, bringing back interest-only payments. It buys time, but it doesn’t pay the debt down, and approval depends on your current equity, credit and income.

Use it as a bridge, not a permanent plan. Check your borrowing room with the home equity calculator.

Option 4: Refinance into a fixed-rate home equity loan

A home equity loan replaces the HELOC with a lump-sum second mortgage at a fixed rate and payment. For example, $60,000 over 15 years at 7.75% is about $564.77 a month; over 20 years, about $492.57. That’s predictable, and possibly lower than your HELOC’s repayment payment if the rate and term work in your favor.

Option 5: Fold it into a cash-out refinance

Replacing your first mortgage with a new, larger one that pays off the HELOC gives you a single payment at a fixed rate. But it moves your whole mortgage to today’s rate. If your first mortgage has a low rate, that is usually expensive. Compare total costs with the cash-out refinance vs HELOC calculator before choosing this route.

Option 6: If you’re struggling, call your lender early

If the new payment won’t fit your budget, contact your lender before you miss a payment. Ask about:

• a temporary extension of the draw period;
• a longer repayment term;
• a loan modification.

A HUD-approved housing counselor can help you prepare, often for free. Missing payments on a HELOC puts your home at risk, because it is secured by the house.

How to choose

Avoid the same squeeze next time

• Budget for the repayment payment, not just the interest-only payment, from the day you open a HELOC.
• Pay principal voluntarily during the draw period, even small amounts.
• Borrow only what you need. An unused line costs nothing, but a drawn balance does.
• Stress-test a rate increase of 2–3 points before drawing large amounts.

Sources:

• CFPB mortgage and home equity resources
• Regulation Z §1026.40 (home equity plans)
• HUD: find a housing counselor

Key terms

• Draw period
• HELOC (home equity line of credit)
• Repayment period