Draw Period

Draw period summary:

• A draw period is a set time frame, typically 5 to 10 years, in which you can borrow from a home equity line of credit

  (HELOC). 

• Your lender might expect you to make payments on a HELOC during the draw period.

• Once the draw period ends, you'll make payments toward the principal and interest, and you can't borrow against your credit line anymore. 

Draw period definition and meaning

A home equity line of credit (HELOC) is a line of credit

The way a HELOC works

The draw period is when you can borrow up to your credit limit from your HELOC. You have the option to borrow, repay, and borrow more, as often as you like. Your lender decides how long the draw period lasts. 

Once the draw period ends, repayment begins. This is when you'll pay back the original amount you borrowed, plus interest. 

Key concept: The draw period is a length of time during which you can withdraw from a HELOC.

More on the draw period

A home equity line of credit offers flexibility when you need money for home improvements, debt consolidation

Your draw period is your window to use your credit line. Once that window closes, you won't be able to borrow more, so it's important to know how long you have. 

Draw period: a comprehensive breakdown

Lenders can set the guidelines for HELOC draw periods and how long you have to enjoy them. Here are some helpful things to know about the draw period on a HELOC. 

• A typical draw period is five to 10 years, but every lender differs. Achieve Loans HELOCs, for example, have a five-year draw period. 

• You can take out money as often as you like during the draw period, up to your credit limit. 

• Some lenders only require interest-only payments during the draw period. When you make interest-only payments, your principal balance

  never goes down. At Achieve Loans, the monthly payment includes principal and interest.

• You can pay more than the minimum during the draw period to save money on interest. 

• Some lenders have a minimum draw. Others don't. A minimum draw means you have to borrow at least that much. Minimum draws could apply when you first get the HELOC, and to subsequent draws. 

Once the draw period ends, the window to access your credit line closes. You'll go into the repayment phase. You'll make monthly payments toward the principal and interest in an amount calculated to fully pay off your loan by the end of the loan term. Principal is the amount you borrowed and interest is what you pay to the lender to be able to borrow. 

A HELOC repayment period is usually longer than the draw period. For example, Achieve Loans offers HELOC terms of 10, 15, 20, and even a 30-year HELOC

Real-life example of a HELOC draw period

During a HELOC draw period, as you borrow more or pay down your balance, your monthly payment could change. 

For example, let’s say you’re approved for a $100,000 HELOC with a 5-year draw period, a 10-year repayment term, and a fixed interest rate of 11.5%. You want to do a major kitchen remodel, so you borrow the full $100,000 when the loan closes. 

The minimum monthly payment on this loan is $1,168. If you don’t borrow more or pay extra, you’ll pay off your loan after 15 years of payments.

By the end of the fifth year of your draw period, you’ve paid your balance down to about $83,000. You decide that you want to remodel your bathroom, so you borrow another $17,000. This brings your loan balance back up to $100,000, your limit.

But now, your payment goes up to $1,406. That’s because your draw period is ending. You’re entering your repayment period, and you have 10 years to pay off this loan. 

If you plan to get a HELOC, it makes sense to estimate your possible payments beforehand. That way, you can make sure they'll always fit your budget. 

Note: Examples are for informational purposes only. Interest rates and payments are for illustration. Individual results vary.