How HELOC Payments Work: Draw vs. Repayment Period

The Tale of Two Payments

One of the most confusing aspects of a HELOC is that the payment rules change completely halfway through the loan life. Understanding this shift is critical to avoiding financial shock.

Phase 1: The Draw Period (Interest Only)

For the first 10 years, your minimum payment is calculated simply as:
(Balance x Interest Rate) / 12.

Example: You borrow $20,000 at 9%.
($20,000 x 0.09) / 12 = $150/month.

Note: You are NOT paying down the $20,000. You are just renting the money.

Phase 2: The Repayment Period (Principal + Interest)

At year 11, the rules change. The bank amortizes your balance over the remaining term (usually 20 years). You must now pay enough to kill the debt.

Example: Your $20,000 balance must be paid off in 20 years at 9%.
New Payment = $180/month.

While this jump seems small on $20k, on a $100k balance, the jump can be hundreds of dollars.