Inside a HELOC: Draw and Repayment Periods

A home equity line of credit has two distinct lives, and understanding both keeps you in control and your first mortgage untouched the whole way through.

The draw period

For the first several years — the draw period — your line is open. You can borrow what you need, repay it, and borrow again, often making interest-only payments on the balance you have drawn. This is the flexible phase: a renovation funded in stages, a standby reserve you may never touch, an expense whose size you do not yet know.

The repayment period

When the draw period ends, the line closes to new borrowing and enters the repayment period, when you pay down principal and interest on whatever remains. Because the required payment can step up at this transition — especially if you made only interest payments before — it pays to plan ahead.

Using it well

• Borrow with a repayment plan rather than treating the line as permanent money.
• If your rate is variable, watch how rate changes affect your payment.
• Consider locking a portion to a fixed rate if your HELOC allows it.
• Enjoy that your first mortgage — and its low rate — stays exactly where it is the entire time.