How does a HELOC work?
Your HELOC is broken down into two phases - each typically 10 year terms. The first phase is described as the "draw period", which means you can "draw", or borrow, from your available line of credit (up to the amount agreed upon) as needed. Although paying back principal is advised (gradually reducing the amount of future payments with interest), you will only be required to make interest payments during this period. The interest rate is a variable rate that adjusts quarterly.
Once the draw period is over, the repayment period will begin. During this time, you will no longer be able to make withdraws from your line of credit and will be required to make payments back on your loan - paying both principal and interest. If you have a balance on the loan after the draw period is over, your interest rate at the start of the repayment period will be locked in for the remaining ten years.
If for any time during this period you decide the funds are no longer needed, you have the ability to lock in the current interest rate and begin the repayment phase of the loan. If you chose to do this, you will not be able to draw off of the available credit anymore, but converting the loan into a fixed rate could be a great way to take advantage of a low rate.