The Quick Read: When the draw ends, borrowing stops and the interest-only payment becomes principal plus interest. The smart plan tests the rental against the larger post-draw payment, builds reserves, and lines up a refinance, payoff, or sale well before the date arrives. This guide models that step-up in coverage terms, using the structure of investment lines that Lendmire arranges through select wholesale lenders.
- The interest-only draw payment flatters your cash flow. The post-draw payment is the true carrying cost of the property.
- Investment lines placed through the network run a 5-year interest-only draw, then a 25-year fully amortizing repayment. Pricing floats the whole way and never converts to fixed.
- At least 75% of the line is drawn at closing. Unless you pay principal during the draw, most of the balance rides into repayment.
- Retest rent against the combined first mortgage and HELOC payment, size reserves for a vacancy, and pick your exit route while you still have options.
What Changes the Day the Draw Ends?
Four things change. You can no longer borrow, unused credit disappears, the payment includes principal, and the payment can move with pricing. The balance you carry, the length of the repayment term, and whether pricing floats or is fixed set the size of the step-up.
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.
| Factor | Draw period | Repayment period |
|---|---|---|
| New borrowing | Allowed up to the limit | Stopped |
| Payment type | Usually interest-only | Principal plus interest |
| Balance | Flat unless you pay extra | Shrinks on a schedule |
| Unused credit | Available | Gone |
| Pricing | May float | May still float |
NerdWallet’s HELOC calculator page confirms the core pattern. Draw-period payments are usually interest-only, and repayment requires principal and interest. It also notes that some borrowers can refinance into a fixed loan when repayment begins.
Experian adds that repayment payments are much higher, and many borrowers see them more than double compared with interest-only. Some lines also carry a balloon feature, meaning the whole balance comes due when the draw ends.
Draw and repayment lengths vary across the broader market. Both sources describe draws of roughly five to ten years, followed by repayment of up to 20 years. The network’s investment lines are different. They use a 5-year draw and a 25-year repayment, and they are the only structure offered on investment property.
The longer repayment term softens the step-up compared with a 20-year schedule. It does not erase it.
Key Terms Defined
Draw period: The window when you can borrow against the line and pay only interest on what you have drawn.
Repayment period: The stretch after the draw ends, when you cannot borrow and must pay down the balance.
Fully amortizing: A payment schedule that retires the balance to zero by the end of the term.
Balloon payment: A structure where the entire remaining balance is due at once, instead of being spread over a schedule.
Coverage ratio: Monthly rent divided by the monthly debt payments it must carry. At 1.00 the rent exactly equals the payments.
CLTV: Combined loan-to-value, which adds every loan on the property and divides by its value.
How Is an Investment Line Underwritten at the Start?
The lender reviews your file on the interest-only payment calculated at the maximum draw. That is a borrower-based test, with a debt-to-income ceiling of 50%. It does not test the post-draw payment, so approval does not tell you the line will be comfortable in repayment.
Here is how investment lines look across the network:
- The ceiling is 70% CLTV on an investment property, with a 700 minimum credit profile. Credit above 700 buys no extra leverage.
- Lines run from $25,000 up to $500,000 on investment property. There is no tier above that.
- The line is a standalone first or second lien. Title must sit with you personally or in a revocable living trust.
- Because the line caps at $500,000, valuation is commonly automated with no traditional appraisal.
- A borrower is limited to three lines, and owners of more than 15 financed properties are not eligible.
- HELOC availability covers Lendmire’s 16 full-service states, which is narrower than its DSCR footprint of 41 markets, including Washington, D.C.
All of this is subject to lender guidelines and a full file review. It is not a commitment to lend.
The key takeaway is structural. The approval test is the lender’s view at the start. Your planning test is the payment at the end of the draw.
Where Does the New Payment Come From?
Three variables set the post-draw payment: the balance when the draw ends, the pricing at that time, and the repayment term. A bigger balance, higher pricing, or a shorter term all push the payment up. The CFPB says payments are often significantly higher in repayment. In some cases the whole amount borrowed may be due as soon as repayment begins.
Your agreement controls the actual transition date, formula, and term. Read it and mark the date on a calendar. Lenders often send notice ahead of time, but you should not rely on it.
On the network’s investment lines, at least 75% of the commitment is drawn at closing. Say you took the line to fund a renovation or a down payment on the next rental. After five interest-only years, almost nothing has been repaid unless you chose to pay principal.
Pricing floats across both the draw and the repayment period on these lines. The step-up therefore comes from two sources: principal entering the payment, and any movement in the index. You cannot plan around a fixed conversion on these lines. Fixed pricing arrives only if you refinance into another loan.
Run the Numbers: A Rental Before and After
A modeled rental shows how fast cushion disappears. These ratios are planning assumptions, not market data, and they count only rent against the first mortgage and the HELOC. They leave out repairs, utilities, management, and capex, so a ratio near 1.00 leaves no room for those costs.
| Case | Assumption | Coverage |
|---|---|---|
| Draw period | Interest-only line payment | 1.45x |
| Post-draw base | Principal plus interest begins | about 1.15x |
| Higher pricing | Index moves up during repayment | about 1.05x |
| Higher pricing + vacancy | Rent drops 10% from vacancy | about 0.95x |
Read down the table. The property that looked comfortable at 1.45x slips under 1.00 when pricing and vacancy hit together. Many investors who underwrote the deal on the draw payment see this for the first time at conversion.
A lender’s DSCR (debt service coverage ratio) compares rent to PITIA only, meaning principal, interest, taxes, insurance, and any association dues. Clearing 1.00 on that test does not mean positive cash flow. Your own cash-flow model needs operating costs on top.
The Coverage Retest Worksheet
Run this retest at least once a year during the draw, and again at each countdown checkpoint below.
1. Start with current monthly rent, then subtract a vacancy allowance.
2. Subtract operating costs: repairs, management, utilities you cover, and reserves for capex.
3. Subtract the first mortgage payment in full.
4. Subtract the post-draw HELOC payment, not today’s interest-only payment.
5. Repeat step 4 with higher index pricing.
6. Note the coverage ratio and the dollar cushion in each case. If either goes to zero or negative, you have a gap to close.
When the retest fails, you have four levers: more principal paid now, more reserves, a refinance, or a sale. Which one fits depends on how big the gap is and how much time you have left.
How Much Reserve Is Enough?
Size reserves from the gap, not from a rule of thumb. Take the monthly shortfall in your vacancy case from the retest. Multiply it by the number of months you could plausibly be short on tenants or paying for a major repair. Then add a separate buffer for capex.
Lenders offer a reference point of their own. DSCR loans commonly ask for around six months of PITIA in reserves. The exact count varies by lender, leverage, loan size, and transaction. Treat your own reserve as a separate pool, sized for the property’s specific risks.
Keep the pool outside the line. Many lenders do not count an open credit line as liquid reserves, because it is borrowed money, and a lender can also freeze or reduce a line under the terms of its agreement. Confirm the treatment against the guidelines of the program you are using.
The Countdown: What to Do and When
| Time before draw ends | Action |
|---|---|
| About 24 months | Run the retest; start paying extra principal if coverage is thin |
| About 12 months | Check equity, credit, and coverage for an exit; raise reserves |
| About 6 months | Confirm seasoning and the exit path; gather rent rolls and leases |
| About 3 months | Finalize the plan; line up a payoff source if a balloon applies |
| Transition month | Switch budgeting to the post-draw payment; re-run the retest |
The earlier you start, the more routes stay open. Credit, property value, and rent coverage all need to cooperate at the moment you want to exit. Waiting until the last month leaves you with whatever your file looks like that day.
Choosing an Exit Route
Five exit routes exist. They work in different situations.
| Route | Fits when | What it needs |
|---|---|---|
| Pay from rent | Coverage stays comfortably above 1.00x | Stable occupancy |
| Pay from reserves | A temporary gap | Liquid cash outside the line |
| DSCR cash-out refinance | Equity and rent support a new loan | Seasoning, credit, coverage |
| Sell | Coverage cannot recover | Payoff at sale |
| Restructure or replace line | A lender offers renewal | Fresh qualification |
The DSCR refinance deserves the most attention because it replaces the HELOC with a property-qualified loan. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. It has no personal debt-to-income test, so it avoids the borrower-based testing that a HELOC adds.
Here is how DSCR terms typically look across the network. Cash-out tops out around 75% LTV on standard rentals, and around 70% on short-term-rental collateral. Lenders commonly expect about six months of seasoning. Most programs want a credit score near 660, and 700 or better unlocks the strongest leverage. Loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders).
Coverage matters too. A 1.00 ratio is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger coverage opens better pricing and leverage.
Term structure helps the payment problem. The spine is the 30-year fixed, which spreads principal over a longer schedule than a 25-year line repayment. Select lenders in the network also offer 40-year terms and interest-only periods, and ARM structures exist for investors who want them. Above $2,500,000, the network generally holds to 30-year fixed structures.
A property held in an LLC can generally go through a DSCR loan subject to program eligibility. An LLC cannot hold title on the HELOC itself. Not every property qualifies. Manufactured homes, log homes, and barndominiums are not offered on the network’s DSCR programs.
For the full DSCR picture, see the complete DSCR loans guide.
Where the General Rule Breaks
Balloon structures. If your agreement makes the entire balance due when the draw ends, planning is about a payoff, not a bigger payment. A refinance or sale has to be ready on that date.
Recycling strategy. Some investors buy with the line, refinance the property, and repay the line from the proceeds. That only works if the refinance happens. Seasoning, valuation, and coverage all have to line up.
Cash-out lowers coverage. If you refinance to pull out more equity, the larger balance lowers your coverage ratio. Run the new ratio before you assume the exit loan will fit.
Title. A property already deeded to an LLC needs a vesting change to carry the HELOC, or a DSCR cash-out route instead.
Ineligible exits. A refinance depends on the property type and condition at that time. If the property falls outside program eligibility, that route closes.
Stacked Lines and Portfolio Timing
Investors with several lines and mortgages should map every conversion date on one calendar. Two lines entering repayment in the same quarter can strain a portfolio even when each property looks fine alone. Stagger the dates where you can, by paying one line down early or refinancing it first.
Keep in mind that each HELOC adds to your personal debt load and shows up as a tradeline. That can affect later qualification on borrower-based loans. A DSCR exit takes the balance off that borrower-based test.
Mistakes to Avoid
- Underwriting the deal on the draw payment instead of the post-draw payment.
- Assuming interest-only means the debt is shrinking. The balance stays flat unless you pay extra.
- Assuming pricing becomes fixed in repayment. On network lines it never does.
- Waiting until the last year to learn the exit loan does not fit.
- Counting an open line as reserves.
- Treating a coverage ratio of 1.00 as positive cash flow.
- Assuming interest on the line is automatically deductible. 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.
For a parallel case, see Lendmire’s piece How to Plan Cash Flow When a Bank Statement Loan Resets. It follows the same logic of testing the payment you will actually carry.
Frequently Asked Questions
Can I borrow after the draw ends?
No. Borrowing stops when the draw period ends, and any unused credit is gone. If you expect to need more capital, plan a refinance or a new line before the date.
Will my payment definitely jump?
Almost always, because principal enters the payment. How much it rises depends on your balance, the term, and where pricing sits. Paying principal during the draw softens the step-up.
What if my agreement has a balloon?
The whole balance comes due at once, so you need a payoff source ready. That usually means a refinance, a sale, or cash reserves. Check your agreement now rather than at the end of the draw.
Can I pay down principal early?
Yes, and it is often a more affordable planning tool. Extra payments during the draw lower the balance that rolls into repayment. Only pay what your reserves and cash flow can sustain.
What if my coverage drops below 1.00?
Start with the retest to see how large the gap is. Then decide between more principal, more reserves, a refinance, or a sale. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted.
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.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. NerdWallet – HELOC Calculator
2. Experian – What Is a Draw Period on a HELOC?
3. CFPB – What is a home equity line of credit (HELOC)?
This article is part of Lendmire’s investment property HELOC program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Do All DSCR Cash-Out Loans Carry an Early Exit Fee? · How to Cash-Out Refinance a 2–4 Unit Rental From Start to Close · How to Document a Cash Purchase for Delayed Financing on a Duplex
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.