Best HELOC Program With an Interest-Only Draw Period

The Quick Read: The right interest-only HELOC depends on the property you borrow against, not on one winning product: on an investment property the network’s line is a standalone 5-year interest-only draw followed by 25 years of fully amortizing repayment, while primary homes and second homes also get a 3-year draw option, so the contract matters more than the label.

• Investment property lines top out at 70% CLTV (combined loan-to-value, meaning all liens against the property), up to $500,000, with a 700 minimum credit score.
• Primary and second-home lines reach 90% CLTV only at a 720-or-better credit profile, and only up to $500,000.
• At least 75% of the line is drawn at closing, so interest-only payments start on most of the line on day one.
• Pricing floats through both the draw and the repayment period and never converts to fixed.

What an Interest-Only Draw Period Actually Is

A home equity line of credit, or HELOC, is a revolving loan secured by property. The draw period is the stretch when you can borrow against it and pay only interest. Then the repayment period begins, and principal comes due.

The math during the draw is simple: the drawn balance, times the annual interest percentage, divided by 12. Interest accrues on what you actually borrowed, not on the full limit. Nothing goes toward principal, so the balance does not shrink.

That is the whole appeal. It is also the whole risk. A lower payment now means the same debt, plus principal payments, later.

Market-wide, NerdWallet reports that HELOCs often carry a 10-year draw with interest-only payments, then up to 20 years to repay. Experian puts typical draw periods at five to 10 years, followed by a 20-year repayment period. Those are market patterns, not Lendmire’s network. The network’s figures come below.

How Underwriting Treats the Line, Step by Step

Lendmire is a mortgage broker. It places HELOC files with wholesale lenders, and those lenders approve or decline. Here is how the lenders on this product read a file, in order.

1. Occupancy is sorted first. Primary residence, second home, and investment property each get their own leverage table. This sets your ceiling before anything else.

2. Credit sets the tier. The program floor is 600, but second homes start at 640 and investment properties at 700. The lender uses a single-bureau score keyed to the primary wage earner. The report can be no more than 90 days old at closing, and there are no rescores.

3. Debt-to-income comes next. DTI, your monthly debts divided by your monthly income, can run to 50% at most. It is capped at 45% for scores from 600 to 679, and anything above 45% needs a 680 minimum. The lender reviews your file on the interest-only payment calculated on the maximum draw, not just what you plan to use.

4. Value is established. Lines at or below $500,000 ordinarily use an automated valuation instead of a traditional appraisal. A higher CLTV may require a secondary valuation, and you can request a full appraisal in any case.

5. The first draw is made. At least 75% of the line is drawn at closing. You cannot open a line at zero and let it sit.

6. Later draws follow. After closing, the minimum additional draw is $1,000 on the structure that states it.

Notice what is missing. Nobody asks what the rental collects. A HELOC is underwritten on you: your credit, your income, your equity. The property’s rent does not enter the math the way it does in a DSCR loan.

The Structures on the Table

Here is where the network’s lines land, by occupancy. Each figure applies only within its own occupancy row, and every line is subject to lender guidelines and full file review.

On a primary residence, lower tiers step down from there. A 700 profile gets 85% up to $500,000, and a 640 profile gets 80%. Lines run from $25,000 to $750,000. Anything above $500,000 is primary residence only.

Two draw structures exist for primary homes and second homes. One is a 3-year interest-only draw with a 17-year fully amortizing repayment. The other is a 5-year draw with a 25-year repayment. Investment lines run only the 5-year draw and 25-year repayment. Whichever you pick, the structure travels with its own figures. Never mix one program’s leverage with another program’s repayment term.

Both are standalone lines, in first or second lien position. Neither converts to a fixed price.

Draw Versus Repayment: What Changes

The payment shock is real. Principal that was deferred for 3 or 5 years now has to be repaid across 17 or 25. The payment also floats with pricing the whole way, so the step-up is hard to predict from the day you close. NerdWallet warns about this repayment shock when the interest-only period ends.

On this network the repayment phase is fully amortizing. Market plans do not all work that way. Experian notes that some HELOCs carry a balloon payment, meaning the entire balance comes due when the draw ends. Read your contract for that language before you assume anything converts to a payment plan.

Where the General Rule Breaks

The mechanics above hold for most borrowers. These edge cases are where files get stuck.

The title is in an LLC. This is the sharpest difference from a DSCR loan. On this HELOC, title must be held by you individually or by an inter vivos revocable living trust (a trust you create during your lifetime and can change). LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title. If the property is already deeded to an entity, the fix is a vesting change or a DSCR cash-out refinance instead, subject to program terms.

The property type is not on the list. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural-zoned properties are not offered. Single-family, 2-4 units, PUDs, townhomes, and condominiums (including non-warrantable ones) are eligible. A 2-4 unit property needs a 640 minimum on the longer-runway program, the one with the 5-year draw.

The investor owns a lot. A borrower is limited to three lines, and anyone with more than 15 financed properties is not eligible.

Credit history has scars. A bankruptcy needs 4 years of seasoning from discharge or dismissal. Foreclosure history splits by program on primary homes and second homes: one program seasons a foreclosure in 7 years and a deed-in-lieu, pre-foreclosure, or short sale in 4, while the other declines the history entirely. Investment files follow the 7-and-4-year path.

Your plan counts on an extension. Don’t. A draw that could be renewed is not a draw you can plan around.

How to Judge the Best Program for Your Situation

There is no single best program. The best one for you depends on the property, your credit profile, your leverage need, and how long you plan to hold. A broker that shops several wholesale lenders can match the scenario to the program. Here is the checklist a good match runs through.

• Draw length. A 5-year draw delays the step-up. A 3-year draw shortens the interest-only window but pairs with a shorter payoff runway. Investment-property lines may also offer a 5-year draw, so confirm which lengths apply to your property type.
• Repayment type. Confirm it amortizes. Ask directly whether a balloon exists.
• Minimum payment. Confirm that interest-only is a minimum, not a mandate, and ask whether you can pay principal during the draw. Paying principal early generally lowers the later payment.
• Draw minimums. Ask what share must be drawn at closing and what the minimum is afterward.
• Pricing behavior. Floating pricing means the interest-only payment can move even if you never draw again. The Consumer Financial Protection Bureau describes the same two-phase structure and notes that payments are often significantly higher in repayment.
• Title. Make sure it can sit in your name or a revocable trust.

This is where a broker earns its keep. Two lenders can post the same headline leverage and differ sharply on draw length, tradeline requirements, or how they treat past credit events. The lender whose program fits depends on your file.

Planning the End of the Draw

Treat the end date as a deadline from the day you close. You have three exits.

Pay it down. If the line funded a down payment, a rental sale or a cash-out refinance can retire it. Selling takes the debt off the books. A DSCR cash-out refinance on a seasoned rental typically tops out around 75% LTV, with about 6 months of seasoning common, subject to lender guidelines.

Let it amortize. Keep the property cash-flow strong enough that the stepped-up payment fits your personal DTI. On an investment line, that payment lands in your personal debt picture, not the rental’s.

Refinance out. This works only if your credit, income, and equity still qualify. Refinancing is never guaranteed, so do not build the plan on it alone.

One more point. The HELOC on your own home puts that home on the line. The Federal Trade Commission states that a lender can foreclose if you don’t repay as agreed. A line against a rental is a different exposure from a line against the house you live in. (Borrowers often mix these up.)

HELOC or DSCR Loan: Which Does Your Plan Need?

They are different tools. A HELOC borrows against equity and is reviewed against your own credit and income. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. DSCR compares rent to the full housing payment (principal, interest, taxes, insurance, and any HOA dues). Clearing 1.00 does not mean positive cash flow, since repairs, vacancy, and management sit outside the calculation.

A common sequence is a HELOC on a primary home to fund the down payment, then a DSCR loan on the rental. The catch: you now hold two obligations at once, and the line’s payment hits your personal debt ratios. Lendmire’s complete DSCR loans guide covers how coverage ratios, leverage, and credit tiers work on that second loan.

The product also has a footprint limit. Lendmire’s HELOC placement runs in 16 full-service states, narrower than its DSCR reach across 41 markets, including Washington, D.C.

Key Terms Defined

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

Repayment period: the phase after the draw, when borrowing stops and principal comes due.

Interest-only payment: a payment covering interest on the drawn balance and nothing toward principal.

CLTV: the sum of all loans against the property divided by its value.

Balloon payment: a structure where the entire balance is due at the end of the draw.

DTI: your total monthly debt payments divided by your gross monthly income.

Next Step

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 mortgage broker, not the lender, and every figure here is subject to lender guidelines and full file review. Nothing here is a commitment to lend. The calculator on this page gives an illustrative estimate only. You can also read the broker’s take on interest-only draw periods on rentals before you decide.

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.

References

1. NerdWallet — HELOC explainer

2. Experian

3. Consumer Financial Protection Bureau

4. Federal Trade Commission — Home equity loans and lines of credit