HELOC Lenders With a Five-Year Draw Period

The Quick Read: A five-year draw period means five years of interest-only borrowing, then a fully amortizing repayment, and on investment-property lines across Lendmire’s wholesale lender network it is the only draw structure offered, with a 70% CLTV ceiling and a 700 minimum credit profile. Every figure is subject to lender guidelines and full file review. Which lenders fit depends on the property, the credit profile, and how the borrower plans to exit the line.

• The draw is interest-only, so the balance does not shrink during the five years.
• After the draw, a 25-year fully amortizing repayment begins and the payment steps up.
• Pricing floats through both phases and never converts to fixed.
• At least 75% of the line is drawn at closing, so it works more like a lump sum than a flexible reserve.
• An investment property must be titled to an individual or a revocable trust. LLC-titled property is not accepted.

Lendmire is a mortgage broker, not a lender. It places these files with select wholesale partners and matches the scenario to the program.

What a Five-Year Draw Period Actually Is

A HELOC has two phases. The draw period is the stretch when the borrower can take money out and make interest-only payments. The repayment period starts when the draw ends, and from then on principal is paid down with every payment.

Experian describes draw periods as typically running five to 10 years, followed by a 20-year repayment. It also notes that some lines offer 15- or 20-year draws. So a five-year draw sits at the short end of the market range. Draw length is a contract term set by each lender. It is not a universal standard.

Across the wholesale network, the five-year draw is paired with a 25-year repayment. That is a 30-year total life, with a repayment window five years longer than the 20-year repayment Experian describes.

How Underwriting Treats the Line, Step by Step

Underwriting a HELOC is a personal-credit exercise, not a property-income exercise. A DSCR loan compares the property’s rent to its monthly obligation. A HELOC compares the borrower’s debts and income to a payment on the line. Rental income on the property is not the test. The complete DSCR loans guide covers the rent-based side in full.

Here is how a typical file moves through review on the network’s programs.

1. Occupancy and title. The lender first confirms what the property is: primary residence, second home, or investment property. Title must sit with the individual borrower or an inter vivos revocable living trust.

2. Credit. The program floor is 600 on primary residences, while second homes start at 640 and investment lines at 700. A single-bureau score model keys to the primary wage earner. The report can be no more than 90 days old at closing, and there are no rescores.

3. CLTV sizing. The lender adds the first mortgage balance and the new line, then divides by value. That combined figure must fit under the ceiling for the occupancy and credit tier.

4. DTI. The maximum is 50%, but credit profiles from 600 to 679 are held to 45%. Any ratio above 45% requires at least a 680 credit profile. The lender qualifies the borrower on the interest-only payment calculated on the maximum draw, not on the balance actually drawn.

5. Valuation. Lines at or below $500,000 ordinarily run an automated valuation with no traditional appraisal. A higher CLTV may require a secondary valuation. A full appraisal is required on every line above $500,000, and a borrower may request one in any case.

6. Closing draw. At least 75% of the line is drawn at closing. Afterward, the minimum subsequent draw is $1,000 on the five-year structure (Texas is $4,000).

Step four matters most for investors. The file is qualified on the interest-only payment. The amortizing payment that arrives in year six is not part of that test, so the borrower has to stress it independently.

What the Limits Look Like by Occupancy

The ceiling depends on the occupancy. Quoting one number for all three would mislead.

On an investment property, 70% CLTV is the ceiling at both the 700 and 720+ tiers. No higher tier exists. The 90% figure appears only on primary-residence and second-home lines, and only at 720 or better.

A line above $500,000 is for primary residences only. It requires a credit profile of 700 or better (720 on the longer-runway program, the 5-year draw structure), caps at 75% CLTV, and requires a full appraisal. Market surveys will quote other CLTV figures for equity lines, but those describe the broader market. The figures above are the network’s, and every one of them is subject to lender guidelines.

The Two Draw Structures

Primary residences and second homes can choose between two structures. The higher-leverage program is the 3-year structure: a 3-year interest-only draw with a 17-year fully amortizing repayment. The longer-runway program pairs a 5-year interest-only draw with a 25-year repayment. Tennessee shortens both: 3-year/12-year and 5-year/10-year.

Investment lines run the five-year structure only. Here is how the two compare for an investor weighing the draw length, outside Tennessee.

Both structures draw at least 75% at closing, and pricing floats through both phases. A figure quoted for one structure carries that structure’s own draw and repayment terms. It cannot be mixed with the other’s.

A Five-Year Timeline, Walked Through

For five years, the payment covers interest only. The balance stays where it is, and the payment moves up or down as the index moves, even when the investor draws nothing new. The Ask CFPB explainer on HELOCs notes that many lines base the minimum payment on the current balance.

In year six, the draw ends and principal enters the payment. The payment steps up even if the index has not moved, because the same balance is now being paid down over 25 years on the standard five-year structure (Tennessee shortens this to 10 years). A shorter draw brings that step-up sooner. A longer draw delays it.

The practical habit is to run the cash-flow test twice. Test the rental against the interest-only payment, then test it against the amortizing payment. Both should hold before the line is placed. DSCR math is the right frame for that test on the rental side, but a ratio above 1.00 is not the same as positive cash flow. Repairs, vacancy, management, utilities, and capex all sit outside that calculation.

Who Benefits From a Five-Year Draw (and Who Should Skip It)

A five-year draw fits a borrower with a defined plan for the money and a defined exit. It works as a bridge: fund an acquisition or a rehab, stabilize the property, then refinance or pay down the line before year six. A borrower using the money for something with no clear payoff path is the one most exposed to the step-up.

Skip it when the plan depends on revolving access. With at least 75% drawn at closing, the undrawn portion is small. The minimum subsequent draw adds another constraint. The structure suits a lump-sum need, not a standing reserve.

The longer draw is the better fit for borrowers who want a longer runway, because it delays the step-up. But the network’s investment lines offer only the five-year structure, so the choice only exists on primary residences and second homes.

Where the General Rule Breaks

Balloon structures. The CFPB HELOC booklet and Experian both note that some lines require the full balance at the end of the draw. The network’s structure amortizes, but a borrower comparing lines elsewhere should read the note for a balloon.

Draw length is not universal. The market range runs wider than five years. That is why lender-to-lender comparisons need the actual contract terms, not a headline period.

LLC-held property. Title can be held only by an individual or a revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title. That is the sharpest structural difference from a DSCR loan, where LLC vesting is common, subject to program terms. A property already deeded to an LLC needs a vesting change or a DSCR cash-out instead.

Exposure caps. A borrower is limited to three lines. Combined exposure caps at $2,000,000 on the 3-year structure’s program and $750,000 on the 5-year structure’s program. A borrower owning more than 15 financed properties is not eligible.

Property type. Single-family, 2-4 units (640 minimum on the five-year structure), PUD, townhome, and condominium, including non-warrantable condos, are eligible. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural zoning are not offered. Modular factory-built homes are eligible on the five-year structure only.

Derogatory credit. 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 program seasons a foreclosure at 7 years and a deed-in-lieu, pre-foreclosure, or short sale at 4. The other declines the history entirely. Investment files follow the 7-and-4-year path.

Freeze language. Lines can carry terms that let a lender reduce or suspend draws. Read the note for that wording before relying on future access.

Availability. The HELOC program runs only in Lendmire’s 16 full-service states, which is narrower than the 41-market DSCR footprint.

Planning the Exit Before the Draw Ends

The draw ends on schedule. It does not renew automatically, and any extension is a lender-by-lender decision. Yahoo Finance notes that a lender may allow a refinance into a new line or another loan type, but that is never guaranteed.

Investors typically choose among four exits.

• Pay down the line from cash flow or sale proceeds before the step-up.
• Sell the property. The CFPB HELOC booklet says a sale generally requires paying the line in full.
• Refinance into a DSCR loan. A cash-out refinance on a standard rental tops out around 75% LTV, and about 6 months of seasoning is the common expectation. Lendmire’s piece Top Investment Property HELOC Providers With a Five-Year Draw Period covers how the investment-property line itself is structured.
• Ask the lender about renewal or conversion well before year five ends.

Start in year four. Gather updated income documents, order a current valuation, and test the amortizing payment against the rent. Reserve requirements and credit review on the replacement loan will apply fresh, so the file should be clean before the draw ends. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Key Terms Defined

Draw period: The window when the borrower can take money from the line and pay interest only.

Repayment period: The phase after the draw, when principal and interest are both paid until the balance reaches zero.

CLTV (combined loan-to-value): All liens on the property added together and divided by its value.

Fully amortizing: A payment that pays down principal so the balance reaches zero by the end of the term.

Balloon: A lump sum due at the end of a term instead of a schedule that pays the balance down.

Floating pricing: A cost that moves with an index and never converts to a fixed figure.

How a Broker Finds the Right Fit

Lendmire works with a network of wholesale HELOC lenders. Their guidelines differ on property type, credit seasoning, foreclosure history, and exposure caps. The right program depends on the file: occupancy, credit tier, title, leverage need, and exit plan. A broker that sees several lenders’ overlays can match the scenario to the program before the file goes in, rather than learning of a mismatch at review.

Documentation that prevents friction includes the trust or vesting documents, a current mortgage statement, the credit report within its 90-day window, and a clear plan for the funds. Clean documentation does not guarantee approval, but it leaves fewer preventable gaps.

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 request a quote.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage that arranges home equity lines of credit through wholesale lending partners in its 16 full-service states. Lines on primary residences, second homes and investment properties are each reviewed individually by the lender under the program’s occupancy, credit and combined-loan-to-value guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Experian: What Is a Draw Period on a HELOC

2. Ask CFPB: What Is a Home Equity Line of Credit

3. CFPB HELOC Booklet

4. Yahoo Finance: Home Equity Line of Credit