How a HELOC Splits Its Term Between Draw and Repayment

The Quick Read: A HELOC runs on two clocks set separately in the contract: a draw period when the borrower can use the line and typically pays interest only, followed by a repayment period when borrowing stops and every payment includes principal. The total term is the draw length plus the repayment length, so a single “20-year” or “30-year” label hides how the line really behaves.

• The draw phase is a borrowing window. The repayment phase is a payoff schedule.
• Across Lendmire’s wholesale network, the structures are a 3-year draw with a 17-year repayment, and a 5-year draw with a 25-year repayment.
• The payment steps up on the switch date, because principal joins the payment.
• Pricing on these lines floats through both phases and does not convert to a fixed payment.
• Investment-property lines use the 5-year/25-year structure only, and an LLC cannot hold title.

What Does “Term” Actually Mean on a HELOC?

“Term” on a HELOC means the full life of the line, which is the draw period plus the repayment period. Some lenders use the word for only one phase, so the first job is to find out which phase a quoted number describes.

Bankrate reports that draw periods are normally five, 10 or 15 years, with 10 the most common. It puts repayment at typically 10 to 20 years. Experian describes a five-to-10-year draw followed by a 20-year repayment as a typical shape. Those are market-wide figures, and the network figures are narrower. Across Lendmire’s wholesale network, the draw is 3 or 5 years and the repayment is 17 or 25 years, depending on the program.

Two lines can share the same total life and still feel very different. A short draw with a long repayment gives the borrower less time to use the line and then a gentler payoff. A long draw with a short repayment gives more borrowing time and a steeper step-up at the end. The total tells you almost nothing about which one you are holding.

How Do the Draw and Repayment Phases Compare?

The draw phase lets the borrower use the line and usually requires interest only. The repayment phase closes the line to new borrowing and requires principal plus interest on a fixed payoff schedule. Everything else follows from those two facts.

The Consumer Financial Protection Bureau describes a HELOC as an open-end line that lets you borrow repeatedly against home equity, and notes the draw period could last 10 years, for example. Its brochure adds that plans differ on the minimum payment during the draw. Some require interest plus a slice of principal, and that slice typically does not retire the balance by the end of the draw. Other plans allow interest only.

How Does Underwriting Treat the Split, Step by Step?

Underwriting qualifies the borrower on the interest-only payment calculated on the maximum draw, then reviews credit, equity and the property. It does not wait to see how much you actually borrow. This is why the structure matters at application, before a dollar is drawn.

Here is the sequence a file typically follows across the network:

1. Occupancy and ownership. The line sits on a primary residence, second home or investment property. Title must be held by the individual borrower or a revocable living trust.

2. Equity and combined leverage. The lender tests the combined loan-to-value of the first mortgage plus the new line against the credit tier.

3. Credit. The program floor is 600, with a single-bureau score keyed to the primary wage earner. Second homes floor at 640, and investment lines at 700.

4. Debt-to-income. The maximum is 50%, and 45% for profiles from 600 to 679. A ratio above 45% requires a 680 score. The payment used is the interest-only payment on the maximum draw.

5. Valuation. Lines at or below $500,000 ordinarily run automated valuation. A line above $500,000 requires a full appraisal, and a borrower may request one at any size.

6. Draw at closing. At least 75% of the line is drawn at closing on both programs. That means most of the balance exists from day one, and the switch date acts on a large balance.

That last step surprises people. The common picture of a HELOC is a mostly empty line that fills as needed. On these programs the line starts mostly full, so the repayment phase works on something close to the whole limit. Every figure here is subject to lender guidelines and full file review.

What Structures Exist on the Network?

Two draw structures exist on primary residences and second homes. One runs a 3-year interest-only draw into a 17-year fully amortizing repayment, and the other runs a 5-year draw into a 25-year repayment. Investment lines use the 5-year/25-year structure only.

Tennessee shortens both structures, so the 3/17 becomes 3/12 and the 5/25 becomes 5/10. A Tennessee borrower gets a much shorter payoff window on the same draw lengths.

Each structure carries its own terms, and a quoted figure always belongs to the structure it came from. Do not carry a leverage ceiling from one structure over to the other. On the investment side, the line is capped at $500,000 with a 700 minimum score and a 70% combined loan-to-value ceiling. A line above $500,000 is limited to primary residences. Lines come in a first or second lien position as a standalone product.

Pricing on both programs floats across the draw and the repayment period and never converts to fixed. That differs from some retail lines, where a borrower can lock part of the balance. Here, a variable payment can move even in a phase where the payment type stays the same. Availability also runs narrower than the DSCR footprint, covering Lendmire’s 16 full-service states only.

What Happens on the Last Day of the Draw?

On the last day of the draw, borrowing stops, the line closes to new advances, and the payment resets to principal plus interest. The balance outstanding on that date, not the original limit, drives the new payment.

The CFPB brochure says the lender may set a schedule to repay in full, often over 10 or 15 years. It also says the whole balance may instead come due at once as a balloon payment. The network programs described here amortize fully, so a balloon is not part of their design. Still, a borrower comparing offers should check for one, because a few lines in the wider market use it.

Payment shock is the real event. Experian says payments can more than double compared with the interest-only payments. The size of the jump depends on three things:

• Repayment length. The same balance repaid over 17 years needs a noticeably larger payment than over 25 years.
• Balance at the switch. With 75% or more drawn at closing, the balance is usually high.
• Pricing movement. Because pricing floats, a rising index lifts the new payment too.

Picture two investors who each carry a nearly full line to the switch date. One holds the 5/25 structure, and the other holds the 3/17. The second investor reaches repayment earlier and pays the balance off over a shorter window, so the step-up is sharper and arrives sooner. The first investor gets more runway and a gentler schedule, but pays interest for a longer total life. Neither is wrong. They fit different plans.

Where Does the General Rule Break?

The general rule is that a HELOC has a draw phase and then a repayment phase. It breaks in a handful of named situations, and each one changes the investor’s math.

Balloon lines. Some lines in the wider market make the entire balance due when the draw ends. The borrower must refinance or pay it off. The CFPB brochure and Experian both flag this.

Phase lengths that don’t match the label. Draw periods across market sources run from a few years to 20 years. Because the range is wide, the contract controls. Read the disclosure for both lengths rather than trusting a headline number.

A sale of the property. The CFPB brochure says that if you sell the home, you generally must pay the HELOC off in full right away. A line is therefore not a long-term obligation you can pass to a buyer.

An LLC-held property. This is the sharpest structural difference from a DSCR loan. 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 refinance instead. Cash-out refinances on standard rentals typically top out around 75% LTV across most of the network, with about six months of seasoning as the common expectation. Eligibility depends on lender guidelines and credit approval.

Ineligible property types. Manufactured homes, co-ops, condotels, log homes, commercial and mixed-use properties, and agricultural zoning are not offered. Single-family, 2-4 unit, PUD, townhome and condominium properties, including non-warrantable condos, are eligible.

Exposure limits. A borrower is limited to three lines. Combined exposure caps at $2,000,000 on one program and $750,000 on the other. A borrower with more than 15 financed properties is not eligible.

Derogatory history. A bankruptcy needs 4 years of seasoning from discharge or dismissal on both programs. Foreclosure history splits by program on primary residences and second homes. One seasons a foreclosure at 7 years, and a deed-in-lieu, pre-foreclosure or short sale at 4. The other declines the history entirely.

Key Terms Defined

Draw period: the window when the borrower can take money from the line, usually while paying interest only.

Repayment period: the phase after the draw when borrowing stops and payments include principal and interest.

Term: the full life of the line, which is the draw length plus the repayment length.

Amortization: a schedule that retires the balance through regular principal payments over a set number of years.

Interest-only payment: a payment that covers the cost of borrowing but does not reduce the balance.

Combined loan-to-value (CLTV): the first mortgage plus the new line, divided by the property’s value.

Balloon payment: a lump sum covering the whole remaining balance, due at a set date.

What Does the Investor Decision Look Like in Practice?

The decision comes down to three questions: how long you need the money, what the property’s income can carry at the switch, and whether you have a plan for the balance. Draw and repayment lengths are the dials, and the right setting depends on the plan.

If the capital funds a phased renovation or a down payment, a longer draw gives time to use it. If the money is for a single purpose, a shorter structure can reduce total interest cost. A rental investor should also model the post-switch payment against the property’s rent. Interest-only carry can look comfortable during the draw. The principal-and-interest payment is the one that tests the cash flow.

DSCR thinking helps here, even though a HELOC is not a DSCR product. DSCR compares rent to the full monthly obligation, and it does not account for repairs, vacancy, management or capex. A rental that covers its payment during the draw may cover it thinly after the switch. A line on a primary residence and a DSCR loan on a rental are separate underwriting tracks. The DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. The Lendmire complete DSCR loans guide covers how that track works. A DSCR refinance can retire a maturing line, but approval then depends on the rent coverage at that time.

Plan the exit before the first draw. An investor who stays interest-only for the full draw and then faces a higher payment should already know the answer to one question: does rent, or a refinance, carry the balance?

Next Steps

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. Lendmire is a broker that arranges financing through select wholesale partners and is not the lender. Terms depend on the file and are not a commitment to lend.

About Lendmire

Lendmire — NMLS# 2371349 — is a mortgage broker that arranges home equity lines of credit in its 16 full-service states through wholesale lenders, on primary residences, second homes and investment properties. Every line is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

Investors who want the broader program framework can review how DSCR loans work.

References

1. Bankrate – What Is an Interest-Only HELOC

2. Experian – How Does HELOC Repayment Work

3. CFPB – What Is a Home Equity Line of Credit

4. CFPB – HELOC Brochure