HELOC Term Length Rules for Draw and Repayment Phases

The Quick Read: A HELOC has two phases, an interest-only draw period and a fully amortizing repayment period, and the lender’s contract sets how long each lasts, which on Lendmire’s network typically means a 5-year draw with 25-year repayment on any occupancy and a shorter 3-year draw with 17-year repayment on primary residences and second homes. Each structure has its own limits, and an investor should read the phase lengths as a cash-flow calendar, not a footnote.

• The draw phase is interest-only on the lines in this network. The repayment phase fully amortizes.
• Investment-property lines run only the 5-year draw and 25-year repayment structure, for a 30-year life.
• At least 75% of the line is drawn at closing, so the interest-only payment starts large.
• Pricing floats through both phases and does not convert to fixed.
• The payment steps up when repayment begins, and no extension should be assumed.

Key Terms Defined

Draw period: the stretch when you can borrow against the line and pay only interest.

Repayment period: the stretch after the draw ends, when borrowing stops and each payment includes principal.

Fully amortizing: a payment schedule that brings the balance to zero by the end of the term.

Balloon: a lump-sum balance that comes due at a set date because the payments never paid it off.

CLTV: combined loan-to-value, meaning all liens on the property divided by its value.

How Is a HELOC Term Built?

A HELOC term is the draw period plus the repayment period, added together. A 5-year draw followed by 25 years of repayment gives a 30-year life. The two halves behave very differently, so the split matters more than the total.

Market descriptions of consumer lines vary. Experian describes a typical draw of five to 10 years followed by a 20-year repayment period. Bankrate says draws normally run five, 10 or 15 years, with repayment of 10 to 20 years. Those are market-wide descriptions. They do not describe what Lendmire’s wholesale network offers.

The network is narrower and more fixed. Across the select lenders Lendmire works with, the structures look like this, subject to lender guidelines and full file review.

Investment lines get only the longer runway. An investor financing a rental cannot choose the 3-year version. On all of these, pricing floats across both phases and never converts to fixed.

What Happens During the Draw Phase?

During the draw, the borrower can borrow against the line, and the payment covers interest on the drawn balance. The first catch is the closing draw. At least 75% of the line is drawn at closing, so a large share of the balance is working from day one.

After closing, a later draw has a $1,000 minimum on the longer-runway structure, except in Texas, where the minimum is $4,000. The shorter-runway structure does not state subsequent-draw minimums.

Interest-only does not mean the debt is shrinking. Principal stays where it is unless the borrower pays extra. Because the line is mostly drawn at closing, the reuse window many investors imagine is smaller here than on a typical consumer line. The balance is usually sitting out there, and the real planning question is the day repayment starts.

What Changes When Repayment Starts?

Borrowing stops, and the payment now includes principal. Picture an investor with a primary-residence line on the 5-year structure. For five years, the payment is interest on the drawn balance. In year six, that same balance begins amortizing over 25 years. The payment steps up, and because pricing floats, it can also move with the market.

Some consumer lines end the draw with a balloon, where the whole balance comes due. Bankrate describes interest-only mechanics where minimum payments may leave principal untouched. The structures in this network are described as fully amortizing in repayment, which is a cleaner ending, though the payment step-up is still real.

A short repayment term raises the step-up. The Tennessee 5-year structure, with only 10 years of repayment, is the sharpest example. Principal is spread over a shorter window, so each payment carries more of it.

How Does Underwriting Treat the Line?

Underwriting qualifies the borrower on the interest-only payment calculated on the maximum draw, not on the lower balance that might follow. The sequence runs in four steps.

1. Occupancy and ceiling. On an investment property, the ceiling is 70% CLTV, with a $500,000 maximum line and a 700 minimum credit profile. On a primary residence, ceilings reach 90% CLTV only at 720 or better, and on a line up to $500,000. Second homes also top out at 90% CLTV, again only at 720 or better.

2. Credit and history. The program floor is 600, though second homes start at 640 and investment lines at 700. A bankruptcy needs 4 years of seasoning from discharge or dismissal.

3. Debt-to-income. The maximum is 50%, and 45% for credit profiles from 600 to 679. A ratio above 45% needs a 680 minimum.

4. Valuation. Lines at or below $500,000 ordinarily run automated valuation, and a higher CLTV may require a second valuation. Every line above $500,000 needs a full appraisal, and a borrower can request one in any case.

Because the payment is tested at the maximum draw, a long draw period does not hide the cost. The lender looks at what the line could cost, not what it costs on a light balance.

What Actually Sets the Term Length?

The lender’s credit agreement sets the term, not a federal formula. Under Regulation Z, section 1026.40, a lender must disclose the length of the draw period and any repayment period. If payments differ between phases, the disclosures must show that. The rule does not set a minimum or maximum for either phase, and it defines a balloon as the result of minimum payments that do not fully amortize the balance by a set date. The full text is also available at the eCFR.

The practical meaning: the number in the contract is the number. Nothing in the rules stops one lender from offering a 3-year draw and another a 15-year draw. A lender’s right to renew or extend a draw is also not something a borrower should plan around. Build the budget around the stated end date.

Where the General Rule Breaks

The 10-and-20 pattern in market descriptions is a common shape, not a law. These edge cases are where investors get surprised.

• Investment lines are shorter-menu. Only the 5-year draw and 25-year repayment applies. The 3-year structure does not.
• Tennessee compresses the back end. Both structures shorten, to 3 and 12 years, or 5 and 10 years.
• Title matters. The property must be held by the individual borrower or a revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title on these lines. A property already deeded to an LLC needs a vesting change, or a DSCR cash-out instead.
• Size limits. Lines run $25,000 to $750,000, but a line above $500,000 is primary-residence only, needs a full appraisal, and caps at 75% CLTV.
• Exposure caps. A borrower is limited to three lines, and an owner of more than 15 financed properties is not eligible.
• Property types. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural zoning are not offered.
• Availability. These lines are brokered in Lendmire’s 16 full-service states only, narrower than the 41-market DSCR footprint.
• Lender freezes. A lender can generally freeze or reduce a line if the property value falls or the borrower’s finances worsen, so a long draw period is permission, not a promise.

Which Term Fits the Plan?

A longer draw suits a borrower who needs time before repayment, such as a phased renovation. A shorter draw suits one who wants principal paid sooner. The honest tradeoff is simple: more years of interest-only means more years of unchanged principal.

The 3-year and 17-year option puts the principal start date closer, and total life at 20 years. The 5-year and 25-year option gives more runway and a lower amortizing payment on the same balance, at the cost of a longer debt. Neither is better in the abstract. It depends on whether the investor’s plan produces a cash event, such as a sale or refinance, before the draw ends.

If the plan depends on that event, build in a margin. Rent growth, a stalled lease-up, or a delayed sale all push the exit past the draw’s end date. Planning for repayment to begin on schedule is safer than hoping for an extension.

When Does a DSCR Cash-Out Make More Sense?

If the borrower holds title in an LLC, needs a larger balance than a $500,000 investment line allows, or wants a fixed structure, a DSCR cash-out refinance is often the better fit. The DSCR route is a different product. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, instead of on the borrower’s personal income ratios.

Typical DSCR terms are straightforward. Cash-out tops out around 75% LTV across most of the network, with about 6 months of seasoning as the common expectation. Coverage of 1.00 is where many select programs start, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. The 30-year fixed is the spine, with 40-year and interest-only options available through select lenders and ARM structures for investors who want them. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

One caution applies: clearing 1.00 is not the same as positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside that calculation. The complete DSCR loans guide walks through the mechanics.

To model the two phases yourself, Lendmire’s HELOC calculator for the draw and repayment phases gives an illustrative estimate, not a quote.

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Reach the team at 828-256-2183 or through Lendmire’s quote page.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and real estate investors in its 16 full-service states. Home equity lines of credit are arranged through wholesale lending channels; Lendmire brokers the line and the lender underwrites each application under its occupancy-based guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Experian

2. Bankrate

3. CFPB — Regulation Z, section 1026.40

4. eCFR — 12 CFR 1026.40