The Quick Read: A home equity line runs in two phases: a draw period, when you can borrow against the line and typically pay interest only, and a repayment period, when borrowing stops and each payment starts paying down principal, so the monthly cost usually steps up, and a low first mortgage does not change that schedule. The contract sets the dates, and the switch is the part investors most often underestimate.
- Only the balance of your first mortgage counts toward combined leverage. Its low interest rate earns you nothing on the line.
- Across Lendmire’s wholesale network, investment-property lines run a 5-year interest-only draw and a 25-year repayment.
- Primary residences and second homes can choose a 3-year draw with a 17-year repayment, or a 5-year draw with a 25-year repayment.
- Investment lines cap at 70% combined loan-to-value and $500,000, with a 700 minimum credit score.
- The payment on a line does not appear in a rental’s coverage ratio, but it is still a real cost.
Key Terms Defined
Draw period: the stretch of the line’s life when you can borrow, repay, and borrow again up to your limit.
Repayment period: the stretch after the draw ends, when the line is closed to new borrowing and the balance is paid off.
Interest-only payment: a payment that covers only the interest on what you have borrowed, so the balance does not shrink on its own.
Fully amortizing: a payment structure that pays the balance to zero by the end of the term.
CLTV (combined loan-to-value): your first mortgage balance plus the line, divided by the property’s value.
Lien position: whether a loan is paid first (first lien) or second (second lien) if the property is ever sold to satisfy debts.
How large a line the equity supports.
An equity line is sized by combined loan-to-value, occupancy, and credit — not by rental coverage. Switch the occupancy or the credit band and the ceiling moves with it.
Investment-property lines require a 700 minimum credit score; second-home lines start at a 640 minimum and primary-residence lines at 600, and the combined-LTV ceiling steps down as the credit band drops on primary-residence and second-home lines and holds on investment-property lines; the line cap steps down on primary-residence lines and holds at every tier on investment-property and second-home lines.
A debt-to-income ratio above 45% requires 680+ credit. Profiles under 640 are limited to single-family homes. At least 75% of the approved line is drawn at closing. Ceilings, floors, and caps update from Lendmire’s centralized guideline source.
Line estimate
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. The rate is an editable assumption; equity-line pricing is variable through both the draw and repayment periods and never converts to fixed. Occupancy and credit drive the ceiling together: an investment property tops out at 70% combined LTV (minimum credit 700, line cap $500,000); a second home tops out at 90% combined LTV (minimum credit 640, line cap $500,000), with the ceiling stepping down as the credit band drops (the cap holds at every tier); a primary residence tops out at 90% combined LTV (minimum credit 600), and its $750,000 maximum line is available only at 75% combined LTV or below with a 700-or-better credit profile (720 on the longer-runway program) and a full appraisal. Lines above $500,000 require a full appraisal. Credit, debt-to-income, property type, and full underwriting review all affect the final line.
How Does the Draw Period Work?
During the draw period, the line behaves like a revolving account. You borrow what you need, repay what you want, and borrow again, up to the limit. Experian notes that payments on a market HELOC generally do not start until you actually borrow from the line.
Minimum payments in this phase are usually interest only. That keeps the monthly cost low, and it is also why the draw phase can mislead people. The balance does not fall unless you send extra principal. ConsumerAffairs points out that extra principal during the draw lowers total cost, because a smaller balance accrues less interest.
Network lines work a little differently from a typical bank line, and the difference matters. On the wholesale programs Lendmire places files with, at least 75% of the line is drawn at closing. After closing, each later draw typically has a minimum of $1,000. Pricing on the line floats through both phases and does not convert to a fixed payment. So the “borrow nothing and keep it in reserve” strategy is limited on this network. Most of the line is working money from day one.
How Does the Repayment Period Work?
When the draw ends, the line closes. You can no longer borrow, and any unused capacity generally disappears. The payment now includes principal, so it rises. Experian warns that repayment payments can more than double compared with interest-only payments.
Three things set the size of that step-up:
1. How much you owe on the switch date.
2. How long the repayment term runs. A shorter term means a higher payment.
3. Whether the rate floats. On this network, it does.
The Federal Reserve’s interagency guidance on lines nearing the end of their draw periods describes the two endings. The balance is either due at once as a balloon payment, or repaid over the remaining term through higher monthly payments. The guidance calls that jump “payment shock,” and it tells lenders to track the contractual end dates. The switch date is fixed in your agreement. It does not move because your plans did.
Draw Versus Repayment at a Glance
| Factor | Draw period | Repayment period |
|---|---|---|
| Borrowing | Open, up to the limit | Closed |
| Typical payment | Interest only | Principal plus interest |
| Balance | Flat unless you pay extra | Shrinks each month |
| Main risk | Understating true cost | Payment shock or balloon |
| Controlled by | Your agreement | Your agreement |
Treat the table as the common pattern. Your agreement is what governs.
How Long Do the Periods Run?
Lengths are contract terms, not a universal rule. Market surveys point to draws of roughly 5 to 10 years, with some products reaching 15 or 20. Experian describes a typical 5-to-10-year draw followed by a 20-year repayment. NerdWallet puts the outer limits at a draw of up to 10 years and a repayment of up to 20.
Those are market-wide figures. The network’s figures are narrower and depend on how the property is used:
| Property use | Draw | Repayment | Max CLTV |
|---|---|---|---|
| Investment property | 5 years | 25 years | 70% |
| Second home | 3 or 5 years | 17 or 25 years | Up to 90% at 720+ |
| Primary residence | 3 or 5 years | 17 or 25 years | Up to 90% at 720+ |
Investment lines use the 5/25 structure only, with a $500,000 maximum line and a 700 minimum credit score. On second homes and primary residences, the 3/17 structure pairs a 3-year interest-only draw with a 17-year repayment. The 5/25 structure pairs a 5-year draw with a 25-year repayment. The 3/17 route ends borrowing sooner and pays the balance off faster. The 5/25 route gives more runway and a lower repayment payment. Each CLTV figure belongs to its own occupancy and credit tier, and the 90% ceiling exists only at a 720 credit profile, subject to lender guidelines. Availability for these lines is limited to sixteen full-service states, which is narrower than the DSCR footprint of 41 markets, including Washington, D.C.
A state-level overlay can shorten both windows in some places, so the file, not a general table, shows which terms apply.
What a Low First Mortgage Changes (and What It Doesn’t)
A low first mortgage changes one thing: it leaves more room for a second lien. Equity is the home’s value minus what you owe, and only the balance counts. A small balance leaves more room under the CLTV cap. A first loan with a very favorable interest rate does not improve the terms on the line. The second lien is priced on its own, and the first mortgage stays in place with its own terms.
That is the appeal. You tap equity without touching the first loan. Lendmire’s piece Can a Homeowner Open a HELOC Without Touching a Low First Mortgage? covers that side in depth.
Here is where the draw and repayment periods bite. Two loans now sit on the property, and the second one is the one that steps up. A homeowner with a low first mortgage often feels the monthly burden is small, because the first payment is small. Then the line moves into repayment, and the second payment becomes the larger one. Plan around the repayment payment, not the interest-only payment you see at closing. Qualification on the network looks at the interest-only payment calculated on the maximum draw, with a debt-to-income ratio generally capped at 50%. That tells you the file clears at the start. It does not tell you the budget clears at the switch.
Title is a structural limit too. These lines require the individual borrower or a revocable living trust on title. An LLC cannot hold title. A rental already deeded to an LLC needs a vesting change first, or a DSCR cash-out instead.
Where the General Rule Breaks
Balloon endings. Some market lines require the full balance when the draw ends. Experian flags this variant. The network’s lines are structured with a fully amortizing repayment, but any line you compare elsewhere needs a direct check.
Freezes and reductions. The CFPB’s HELOC booklet explains that plans generally let a lender freeze or reduce a line if the home’s value declines. Unused capacity can vanish before the draw ends. Treat undrawn room as available, not guaranteed.
Fixed-rate conversion. NerdWallet notes that some market lenders offer fixed-rate options or let you refinance to a fixed loan at repayment. On this network, pricing floats through both phases and never converts. If a fixed payment matters to you, the plan has to be a refinance into a different loan.
Short repayment windows. A shorter repayment term raises the payment sharply. A 10-year draw on a 15-year line leaves only five years to repay, and that is an illustration of the mechanism, not the norm.
Early payoff. Some lenders attach terms to paying a line off early, so read that clause before you plan to retire it.
Rentals. Rental-property lines are tighter than primary-residence lines, in structure and in leverage. The network allows investment lines in only the 5/25 structure, at 70% CLTV, up to $500,000, and nothing above that exists on an investment property. A line above $500,000 is for primary residences only.
Four Ways the Draw Plays Out
You draw the full line. Interest-only payments stay at their highest level through the draw. At the switch, the payment includes principal on the full balance. This is the biggest step-up. Run the future payment against the property’s rent before you commit.
You draw most of it and pay some down. The extra principal shrinks the balance on the switch date, which lowers the repayment payment. The size of the step-up depends on how much you retire.
You keep a small balance. Because at least 75% of the line is drawn at closing on this network, a very small balance usually means a smaller line. If you want a small amount of capital, a smaller line fits better than a large one with most of it parked.
You pay principal on a schedule. This is the cleanest path. Treat the interest-only draw as a floor for the payment, not a plan, and send principal each month so the switch feels like a change in schedule, not a shock.
Planning for the Switch
Start the review at least a year before the draw ends. Pull the agreement and write down the draw end date, the repayment length, the payment formula, any balloon clause, and any limit-change or early-payoff terms.
Then pick a path:
1. Pay down. Retire part of the balance so the repayment payment lands inside your budget.
2. Refinance. Move the balance into a new loan. A refinance needs a fresh look at credit, value, and combined leverage, so give it room.
3. Sell or exit. If the line funded a short hold, the sale can retire it.
4. Absorb the step-up. Only do this if the rent and your reserves cover it with room to spare.
If the repayment payment will not fit, talk to a broker or the servicer early. Options narrow as the date gets closer.
HELOC or DSCR Cash-Out?
A HELOC is underwritten on you: credit, equity, and debt-to-income. A DSCR loan is underwritten on the property, so it qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The ratio compares monthly rent to the monthly principal, interest, taxes, insurance, and any HOA dues.
Two cautions follow. First, clearing 1.00 is not positive cash flow. Repairs, vacancy, management, and utilities sit outside the calculation. Second, a HELOC payment on another property never appears in a rental’s coverage ratio, yet it still comes out of your cash.
The trade is a structural one. A DSCR cash-out refinance on a standard rental replaces the first mortgage, and the network generally tops that out near 75% LTV, so a low first mortgage is given up. A HELOC leaves the first loan alone, but it adds a second payment that steps up at the switch. For a short hold of a year or less, a line often makes sense. For a long hold, many investors price a refinance instead. Lendmire’s article on whether a bank statement HELOC forces a draw on a low-balance first mortgage covers one related wrinkle. The complete DSCR loans guide lays out the rental-loan side of the comparison.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Is the draw period always interest only?
Usually, but not always. Interest-only minimums are the common pattern on market lines, and they are how the network’s lines work during the draw. Your agreement controls, so confirm the payment formula before you borrow.
Can I pay principal during the draw?
Yes, and it helps. Extra principal lowers the balance that interest accrues on and shrinks the payment you face at the switch. It is optional, so it only happens if you make it happen.
Does my low first mortgage improve the terms on the line?
No. Only the balance of the first mortgage reduces available equity. The first loan’s interest rate does not affect the line’s terms.
What happens to unused credit when the draw ends?
It generally disappears, because the line closes to new borrowing. A lender can also freeze or reduce a line during the draw if the property’s value declines.
Can an LLC take out one of these lines?
No. The individual borrower or a revocable living trust must hold title. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot. A property in an LLC needs a vesting change or a DSCR cash-out instead.
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 these loans through select wholesale partners, and every figure above is subject to lender guidelines and full file review. This is not a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker. Home equity lines of credit — on a primary residence, a second home or an investment property — are arranged through wholesale lenders in Lendmire’s 16 full-service states, and every line is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Experian, What Is a Draw Period on a HELOC
2. ConsumerAffairs, HELOC draw period
3. Experian, How Does HELOC Repayment Work
4. Federal Reserve, interagency guidance on HELOCs nearing the end of their draw periods
5. NerdWallet, HELOC calculator explainer
This article is part of Lendmire’s home equity line of credit program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much a Second-Lien HELOC Costs Next to a Low First Mortgage · Is a HELOC Right for a Homeowner Locked Into a Low First Mortgage? · HELOC Repayment Terms When the Line Is From Another Lender
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.