HELOC Draw Period vs. Repayment Period: Budget for Payment Shock in Florida

Your HELOC offers low interest-only payments of $500/month during the draw period. Sounds great. Then the draw period ends, the repayment period begins, and your payment jumps to $1,800/month. You can’t afford it. Now what? This payment shock ruins more HELOC borrowers than rate increases. Here’s how to prevent it.

Understanding the Two HELOC Periods

Most HELOCs have a two-phase structure:

Draw Period (Typically 5–10 Years)

• You can borrow and repay freely
• Payments are interest-only
• You only pay interest on money you’ve drawn
• Payments are typically lowest during this phase

Repayment Period (Typically 10–20 Years)

• You can no longer draw new funds
• Payments must include principal + interest
• Payments are typically much higher
• This is when most defaults happen

How Payments Change: The Real Numbers

Example HELOC:

• Credit limit: $150,000
• You draw: $100,000 at 9.25% rate
• Draw period: 10 years
• Repayment period: 15 years

Draw Period Payment (Interest-Only): $100,000 × 9.25% ÷ 12 months = $770/month

You’re only paying interest. Principal stays at $100,000.

Repayment Period Payment (Principal + Interest): $100,000 amortized over 15 years at 9.25% = $1,093/month

Payment increased by $323/month (42% jump).

But This Gets Worse if Rates Rose:

Scenario: Prime went from 7.25% to 9.00% during draw period

Draw Period End:

• Your HELOC rate: 9.00% + 2.25% margin = 11.25%
• Interest-only payment: $937/month

Repayment Period (Rate Still 11.25%):

• Principal + interest over 15 years: $1,345/month
• Jump from $937 to $1,345 = $408/month increase (44% jump)

Most people don’t budget for this.

Why Payment Shock Happens

Reason 1: Simple Miscalculation Borrowers focus on the draw period payment ($770) and assume repayment payment will be “slightly higher.” They don’t calculate that interest-only payments don’t build equity, so the principal amount doesn’t shrink.

Result: When principal repayment begins, the full principal is still due over the remaining term.

Reason 2: Variable Rates Rising During Draw Period If you draw a $100,000 HELOC at 8.50% and rates rise to 10.50% over the next 10 years, your draw period payment increases. When repayment begins, your payment is even higher.

Reason 3: Not Planning for Longer Repayment Terms A 15-year repayment period is standard, but some lenders allow 20 years. Spread $100,000 over 15 years vs. 20 years:

• 15 years: ~$1,093/month
• 20 years: ~$927/month

The longer repayment term lowers payment but you pay more total interest.

Calculating Your Future HELOC Payment

Here’s how to calculate what your repayment period payment will be:

Step 1: Determine Your Draw Amount How much do you actually plan to borrow? Not the credit limit—the amount you’ll actually draw.

Example: $100,000 drawn

Step 2: Know Your Rate What’s your HELOC rate at approval? Prime + your margin.

Example: 9.25%

Step 3: Know Your Repayment Term How many years will you repay principal + interest? Ask the lender.

Example: 15 years (180 months)

Step 4: Use the Loan Payment Formula Monthly payment = [P × r(1+r)^n] / [(1+r)^n - 1]

Where:

• P = Principal ($100,000)
• r = monthly rate (9.25% ÷ 12 = 0.00771)
• n = number of months (15 years × 12 = 180)

Or Use an Online Calculator: Search “amortization calculator” and input:

• Loan amount: $100,000
• Interest rate: 9.25%
• Term: 15 years (180 months)

Result: $1,093/month

The Payment Shock Scenario

Most borrowers experience this:

Year 1–10 (Draw Period):

• Balance drawn: Increases from $0 to $100,000
• Payment: Interest-only, typically $300–$800/month
• Mindset: “Easy, I can afford $500/month”

Year 11–25 (Repayment Period):

• Balance drawn: Fixed at $100,000
• Payment: Principal + interest, typically $900–$1,500/month
• Reality: “Wait, it jumped to $1,200/month? I can’t afford this!”

Solution: Budget NOW for the higher repayment payment.

Strategies to Avoid Payment Shock

Strategy 1: Pay Principal During Draw Period Instead of minimum interest-only payments, pay extra toward principal.

Draw period, paying interest-only: $70/month Draw period, paying principal too: $300/month

By repayment, principal is lower, so repayment payment is lower.

Example:

• If you pay $300/month for 10 years (instead of $70 interest-only), you’ve paid down $27,000 in principal
• Remaining balance: $73,000
• Repayment payment: $794/month instead of $1,093

Huge difference.

Strategy 2: Convert to Full Amortization Before Repayment Some lenders let you start paying principal + interest during draw period.

Instead of waiting for repayment period, voluntarily switch to full amortization.

Draw period, converted to amortization: $1,093/month Repayment period (if you’d waited): $1,093/month

No shock—payment is already locked in.

Strategy 3: Use HELOC Short-Term Only If you only need HELOC funds for a few years, plan to pay it off before repayment period.

Example: Draw $100,000 at start of draw period, pay it off by year 7.

By year 10, balance is $0. No payment shock because you’ve already repaid.

Strategy 4: Plan for Longer Repayment Terms If your lender offers 20-year repayment, choose that to lower the payment.

15-year repayment: $1,093/month 20-year repayment: $927/month

You pay more total interest ($67,000 vs. $59,000), but monthly budget is easier.

HELOC vs. Home Equity Loan: Avoiding Shock

Home Equity Loan:

• Fixed payment from day 1
• No payment shock (payment is set)
• Can’t borrow more later
• Best if you need predictable payments

HELOC:

• Low interest-only payments during draw
• High principal + interest payments during repayment
• Flexibility to borrow more
• Requires discipline to avoid shock

If you’re terrified of payment shock, a home equity loan might be better. Fixed payment, no surprises.

What to Ask Your Lender

1. “What’s the exact length of my draw period?” 5 years? 10 years? Lock it in writing.

2. “What’s the repayment period length I’m locked into?” 10 years? 15 years? 20 years?

3. “Calculate my interest-only draw period payment?” Get it in writing.

4. “Calculate my principal + interest repayment period payment?” Get it in writing so you can plan.

5. “Can I convert to amortization early (before draw period ends)?” Some lenders allow this for a fee.

6. “What happens if I don’t pay during repayment period?” Can I extend repayment? What are fees?

7. “Is there a balloon payment at the end?” Most amortized HELOCs don’t have balloons, but verify.

Red Flags: HELOC Terms That Shock

Vague Payment Terms Lender won’t provide written calculation of repayment payment. Run away.

Adjustable Repayment Period “We’ll determine repayment term when draw period ends.” This is lender discretion—you could get 10 years or 20 years. Get it locked in advance.

Balloon Payments “Final payment of $50,000 due at end of repayment period.” This is a lender mistake or scam. Avoid.

Option to Extend Indefinitely “Keep drawing and making interest-only payments forever.” Eventually, lenders come calling for repayment. No true “draw forever” HELOCs.

Planning Your HELOC Exit

Think about how you’ll handle repayment:

Option A: Pay Down Principal During Draw Period Reduce the balance to lower repayment payments.

Option B: Refinance at Repayment Take out a new loan (new mortgage or home equity loan) to pay off HELOC. Risky if rates are higher.

Option C: Sell Home or Downsize Use proceeds to pay off HELOC. This is a major decision but eliminates the payment shock completely.

Option D: Accept the Higher Payment Budget NOW for the higher repayment payment. Don’t get shocked later.

Most borrowers should start with Option A: pay extra toward principal during draw period to minimize repayment shock.

Ready for a Florida HELOC?

Understand that draw period payments are interest-only and low, but repayment period payments are principal + interest and much higher. Calculate your future repayment payment NOW, budget for it, and consider paying principal during draw period to soften the shock when repayment arrives.