Frequently asked questions
What happens when the draw period ends?
When the draw period expires (typically 10 years), you can no longer borrow against the line. Your outstanding balance converts to a fully amortizing loan repaid over the repayment period (typically 10–20 years). The monthly payment jumps significantly because you are now paying principal and interest, not just interest.
How is a HELOC different from a home equity loan?
A HELOC is a revolving line of credit with a variable rate — you draw what you need, when you need it, and pay interest only on what you have drawn. A home equity loan is a fixed lump sum at a fixed rate with predictable payments from day one. HELOCs offer flexibility; home equity loans offer payment certainty.
What happens to my payment if rates rise?
HELOC rates are typically variable (tied to the prime rate). A 1% rate increase on a $60,000 balance adds $50/month to the interest-only payment. During the repayment period, the impact is even larger because you are paying principal too. Some HELOCs offer a fixed-rate lock option for portions of the balance.
Can the lender freeze or reduce my HELOC?
Yes. If your home value drops significantly, the lender can reduce your credit limit or freeze the line entirely. This happened broadly in 2008–2009. Similarly, if your credit score drops or you miss payments, the lender may restrict access. Never rely on a HELOC as your only emergency fund.
Should I pay more than interest-only during the draw period?
Paying principal during the draw period reduces your balance and future repayment-period payments. If you only pay interest for 10 years, you owe the full drawn amount when repayment starts. Even small principal payments during the draw period compound into meaningful savings and a much easier repayment transition.
What is the tax treatment of HELOC interest?
HELOC interest is tax-deductible only if funds are used to buy, build, or substantially improve the home securing the line. Using HELOC funds for other purposes (debt consolidation, tuition, travel) means the interest is not deductible. The combined deductible mortgage debt limit is $750,000. Consult a tax professional for your situation.