HELOC Repayment Math: Avoiding the Draw Period Payment Shock
A Home Equity Line of Credit (HELOC) operates in two distinct phases: a 10-year Draw Period (during which borrowers may draw funds and pay interest-only) followed by a 10 to 20-year Repayment Period (during which the full principal balance must be amortized alongside ongoing interest).
The Two Phase Equations
Draw Period (Interest-Only): Monthly Payment = Balance × (APR ÷ 12)
Repayment Period (P&I): Monthly Payment = Balance × [r(1 + r)^n] ÷ [(1 + r)^n - 1]
Payment Shock Case Study: A $50,000 HELOC at 8.5% APR
| Phase | Duration | Monthly Payment | Principal Reduction |
|---|---|---|---|
| Draw Period (Interest-Only) | Years 1–10 | $354.17 / mo | $0 (Zero) |
| Repayment (15-yr Amortization) | Years 11–25 | $492.38 / mo | Full $50,000 paid off |
