HELOCs work much like credit cards. You have a set credit line (based on your home equity) that you can withdraw money from as needed. This money can be withdrawn throughout the draw period, which usually lasts at least 10 years. Once that time period ends, you enter the repayment period. This is when you’ll start making larger monthly payments to pay down your loan balance.
Let’s look at an example: Say you apply — and are approved — for a $50,000 home equity line of credit. The draw period is 10 years, allowing you to pull out cash for your roof repairs this year, your daughter’s college tuition in three years, and those medical bills you get hit with nine years down the road. While withdrawing these funds, you’ll make monthly payments — but only for the interest on what you’ve withdrawn.
When that 10 year period is up, you’ll no longer be able to withdraw money and will need to make larger monthly payments to repay your loan. Repayment periods often last for around 20 years.