HELOC Draw Period and Repayment 2026: What Borrowers Do Not Understand and How MLOs Should Explain It

A HELOC has two distinct phases: the draw period and the repayment period. Most borrowers focus entirely on the initial rate and miss the payment reset that occurs when the draw period ends. MLOs who explain both phases clearly at the time of origination protect clients and their own reputation.

Draw Period Mechanics

• ✦Draw period is typically 10 years, though some lenders offer 5-year or 15-year draw periods
• ✦During the draw period, the borrower can access, repay, and redraw funds up to the credit limit
• ✦Minimum payment during the draw period is usually interest-only on the current outstanding balance
• ✦Principal is not reduced unless the borrower pays above the minimum
• ✦A borrower who makes only minimum payments for 10 years may still owe the full original balance at the end of the draw period

Repayment Period Mechanics

After the draw period ends, the HELOC enters the repayment period, typically 20 years. The line freezes and no new draws are permitted. The payment resets to a fully amortizing amount on whatever balance remains. A borrower carrying a $100,000 balance at 8.5% who was paying interest-only during the draw period will see the payment nearly triple when the loan converts to a 20-year amortizing schedule. This payment shock is a real qualification and client education issue at origination.

Rate During the Repayment Period

• ✦Most HELOCs remain variable throughout the repayment period, not just the draw period
• ✦Some lenders allow conversion to a fixed rate at the end of the draw period, typically for a fee or rate adjustment
• ✦Early payoff: most HELOCs have no prepayment penalty, but some lenders impose a fee if the line is closed within 2 to 3 years of origination

What MLOs Should Calculate Before Closing

• ✦Run the repayment period payment at current rates for the borrower's likely draw amount before recommending a HELOC
• ✦If the borrower plans to sell before the repayment period begins, the HELOC strategy may work even with a large outstanding balance
• ✦Borrowers who say they will make extra principal payments during the draw period rarely do: price the conservative scenario