In a Nutshell
A fixed-rate HELOC combines the flexibility of a revolving line of credit with the stability of a fixed interest rate by allowing you to lock in your rate on some or all of the funds you withdraw. But there may be limits to the number of rate locks you can have at one time, and minimum withdrawal requirements you must meet to qualify for a fixed rate.A HELOC is a revolving line of credit that’s secured by your home, and that allows you to borrow money up to the line’s credit limit and repay it — with interest — over time.
HELOCs typically have variable interest rates, meaning they fluctuate as market conditions change. But with a fixed-rate HELOC, part or all of the money you draw from the credit line has a fixed interest rate, protecting you from potential interest rate increases.
Fixed-rate HELOCs are less common and may have different requirements than HELOCs with variable rates. We’ll look at how fixed-rate HELOCs work and review some lenders that offer them to help you decide if one is right for you.
- Are HELOC rates fixed or variable?
- Can I get a HELOC with a fixed rate?
- Should I get a fixed-rate HELOC?
Are HELOC rates fixed or variable?
In general, interest rates on HELOCs are variable. But some lenders let you lock in a fixed interest rate for part or all of your credit line. With a variable-rate HELOC, interest rates fluctuate in line with the prime rate and may increase or decrease while the credit line is open.
Because your rate can change, your monthly payment may not be the same every month. When rates increase, your monthly payment goes up, and when they drop, your monthly payment goes down.
A HELOC’s variable rate is one of the features that sets it apart from a home equity loan. Both allow you to borrow against the equity in your home, but home equity loans typically have fixed interest rates. You borrow a single, lump sum and repay it in equal monthly installments — with interest — over the life of the loan.
A fixed-rate HELOC is a cross between the two, giving you the predictability of a home equity loan and the flexibility of a HELOC.
Learn more: HELOC vs. home equity loansCan I get a HELOC with a fixed rate?
Yes, some — not all — lenders offer fixed-rate options. Lenders that do may allow you to get a fixed-rate option right away or convert portions of your variable rate HELOC to a fixed rate when you make a withdrawal.
To qualify for a fixed rate, you typically need to meet a minimum draw requirement. So if the amount you withdraw is below the lender’s minimum, you’ll have to pay the line’s variable rate.
If you choose a fixed-rate option, your interest rate may be higher than it would if you went with the variable rate — at least at first. But if the variable rate of the HELOC rises in the future, you’ll be protected from those rate increases.
Lenders may limit the number of fixed-rate loans you can have at one time and may charge a rate lock fee. But some will complete the conversion at no charge. Once you’ve locked in your interest rate, you may be able to unlock and relock it to take advantage of future rate decreases.
Whatever amounts you don’t convert to a fixed rate will accrue interest at the HELOC’s variable rate.
Should I get a fixed-rate HELOC?
In a rising-rate environment, locking in a fixed rate can help protect you from future rate increases.
If you’ve built up equity in your home and need cash for a renovation or other expense, a fixed-rate HELOC may be worth considering. Here are some questions to help you figure out if a fixed-rate HELOC may be a good choice.
- How much equity do you have in your home?
- How much do you need to borrow? Does it meet the minimum draw requirements for a fixed rate?
- How do you plan to use the money?
- Does a HELOC, home equity loan or personal loan make more sense?
- Are you comfortable with uncertainty or do you prefer predictable monthly payments?
- What is your credit history like?