Draw vs. Repayment, Qualification, and Benefits

A Home Equity Line of Credit (HELOC) gives homeowners flexible access to funds, but borrowers should have a clear understanding of how it works before deciding if it’s the right fit. From eligibility requirements to how payments are structured, there are several factors to consider. In this article, we’ll walk through the HELOC process, covering the repayment and draw periods, what lenders look for during approval, and how a HELOC might support your financial goals.

How To Qualify for a HELOC

Qualifying for a HELOC starts with having available equity in your home—meaning its market value must be higher than your remaining mortgage balance. Most lenders allow homeowners to borrow up to 85% of their home’s value, minus the outstanding mortgage balance, though borrowing limits may vary.

Lenders assess several factors to determine eligibility and borrowing limits, including:

  • Credit Score. A good to excellent credit score helps secure better interest rates and loan terms.
  • Debt-to-Income (DTI) Ratio. A low DTI (typically below 43%) shows lenders you have enough income to manage additional payments.
  • Payment History. A track record of on-time mortgage and debt payments strengthens your application.

Some lenders may also consider employment history, income stability, and overall financial health when reviewing HELOC applications. Once you meet the lender’s qualifications, you can move forward with the HELOC application process.

HELOC Benefits

A Home Equity Line of Credit (HELOC) can be a valuable financial tool for homeowners. Some of the key HELOC benefits include:

  • Flexible Access to Funds. Borrow as needed during the draw period, similar to a credit card.
  • Lower Interest Rates. HELOCs typically have lower interest rates compared to credit cards and personal loans. 
  • Use for a Variety of Expenses. Ideal for anything from home renovations to unexpected expenses.

Heritage Family Credit Union HELOC Benefits

HFCU offers additional benefits designed to help members make the most of their HELOC:

  • No Closing Costs. Save money upfront with no closing costs in most cases, keeping more cash in your pocket.
  • Extended Promotional Rate. Enjoy a fixed promotional rate for a full two years from the closing date—much longer than the few months typically offered by other lenders. After the promotional period, your rate adjusts to a variable rate tied to the WSJ Prime Rate.
  • No Balloon Payments. Unlike many HELOCs that require interest-only payments during the draw period, resulting in significantly higher payments later, HFCU’s HELOC includes principal payments from the start. This leads to more predictable monthly payments and no surprises when the repayment period begins.

HELOC Draw Period vs. Repayment Period

One of the most common questions lenders get about HELOCs pertains to the difference between the draw and repayment periods. Knowing more about these phases can help you plan how to access funds and manage repayment.

HELOC Draw Period

The HELOC draw period functions similarly to a credit card, allowing you to borrow what you need, when you need it, up to your approved credit limit. Your credit limit is determined by the equity you’ve built in your home and the lender’s borrowing guidelines. This flexibility makes the draw period useful for covering ongoing expenses, such as home renovations or other major financial needs. The length of the draw period varies by lender but typically lasts for ten years.  

HELOC Repayment Period

Once the HELOC draw period ends, borrowing stops, and you enter the repayment period, where you must begin (or continue) repaying both the principal balance and interest. Lenders set a repayment term, typically ranging from five to ten years. Your monthly payment amount depends on your outstanding balance and interest rate. Since many HELOCs have variable rates, your payments may fluctuate over time.

Now that you understand the HELOC draw vs. repayment period, qualifications, and benefits, you may be wondering about the best ways to use your home’s equity. Explore our guide on smart ways to use a HELOC to learn how it can help with home improvements, debt consolidation, education costs, and more.

If you have questions or need more information, contact us today to learn more about HELOC options and how they can support your financial goals.