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HELOCs borrow cash from equity without the costs of a full mortgage refinance. This flexibility has made HELOCs a popular ways to access home equity.
Typically a HELOC's flexibility comes with a cost: its variable interest rate that changes with market conditions.
Which makes some homeowners wonder: Can I get a fixed-rate HELOC?
What is a fixed-rate HELOC?
A fixed-rate HELOC lets borrowers draw against their home’s equity at a fixed interest rate.
Just like a typical HELOC, or home equity line of credit, a fixed-rate HELOC uses the value of a home to secure a line of credit. With home equity providing the security, homeowners can pay lower interest rates compared to credit cards which are unsecured.
A typical HELOC uses a variable interest rate to calculate monthly payments. A fixed-rate HELOC locks in a rate that won't change. This fixed rate is typically higher than current variable rates.
Despite its fixed rate, the HELOC's payments will still change each month. Each monthly payment is based on the amount currently borrowed, not the full credit line.
....in as little as 3 minutes – no credit impact
How does a fixed-rate HELOC work?
A fixed-rate HELOC operates much like a standard HELOC:
- Draw period: The HELOC can be used much like a credit card during its draw period which typically lasts five to 10 years. Within the HELOC's credit limit, funds can be drawn, repaid, and drawn again. A typical HELOC charges a variable rate during the draw period.
- Repayment period: When the draw period ends, the existing balance transforms into a fixed loan with a fixed rate and fixed monthly payments for 10 to 20 years, or until the loan is paid off.
A fixed-rate HELOC works the same except for the fixed rate during the draw period.
Fixed-rate HELOC pros and cons
Fixed-rate HELOC pros
These pros explain why some borrowers ask about fixed-rate HELOCs:
- More predictable monthly payments: A fixed rate helps homeowners predict their monthly payments.
- Protection against rising rates: A fixed rate shields you from hikes in variable interest rates, keeping costs more stable.
- Financial stability: A consistent rate supports long-term planning for borrowers.
Fixed-rate HELOC cons
Here’s why some opt for Better’s variable credit line instead of a fixed-rate HELOC:
- Higher interest rates: Fixed-rate HELOCs usually start with higher fixed rates because the lender could lose money on the loan later.
- Less flexibility: A typical HELOC saves borrowers money when rates fall. This doesn't happen with a fixed rate loan.
- Fees and penalties: Some HELOC lenders charge for conversion or early repayment, reducing value.
- Harder to find: Fewer lenders offer this loan type. Better, for example, does not offer a fixed-rate HELOC.
This table breaks down the pros and cons side by side:
| Feature | Variable-rate HELOC (Better) | Fixed-rate HELOC |
|---|---|---|
| Predictability | Payments vary with market HELOC rates | Stable monthly payments |
| Interest Rate | Lower initial variable interest rates | Higher, locked HELOC rates |
| Flexibility | Adapts to changing needs | Limited once rate is fixed |
| Protection | Payments may rise with rates | Shields from rate increases |
| Cost potential | Savings if rates stay low | Higher starting costs |
| Rate drop benefits | Lower payments possible | No advantage if rates fall |
| Fees | No hidden costs with Better | Possible penalties from lenders |
| Funding speed | Cash in as little as 7 days | Often slower |
Other factors to consider with a fixed-rate HELOC
Inflation/interest rate trends
The interest rate and monthly payments on a typical, variable-rate HELOC goes down when market rates go down.
Market rates tend to decrease during recessions which is also when consumers usually need lower payments.
A fixed-rate HELOC does not offer this natural flexibility.
Cost and fees
Some HELOC lenders charge for early payoff or rate conversion. For example, Bank of America imposes a $450 fee for closing a HELOC within three years, while U.S. Bank charges 1% of the credit line (up to $500) if repaid within 30 months.
These types of policies protect the lender from losing money, but they limit the borrower's choices.
Minimum borrowing requirements
Many lenders also require a minimum lump sum to qualify for a fixed-rate HELOC. A homeowner who doesn't have enough equity to reach this minimum can't use the loan.
Why aren’t all HELOC rates fixed?
Variable-rate HELOCs dominate the market because HELOCs, by their nature, are a flexible way to borrow from home equity.
HELOCs resemble credit cards. They're revolving loans whose balance changes from month to month. A variable rate suits this type of borrowing.
How flexible variable rates can be better
Though Better doesn’t offer a fixed-rate HELOC, its variable-rate HELOC excels with:
- Fast Funding: Access your credit line in as few as 7 days.
- Competitive Rates: Lower variable interest rates keep costs down.
- Flexible Terms: Repay your loan without penalties.
Better’s HELOC also lets borrowers tap up to 90% of their home’s value (max $750,000). This surpasses credit line sizes for many other HELOC lenders.
| Feature | Better HELOC | Other lenders |
|---|---|---|
| Appraisal fees | Often not required | Typically $500-$700 |
| Cash access | Up to 90%, $750K max | Usually 80-85% |
| Availability | All property types | Often primary homes only |
| Closing speed | Cash in as little as 7 days | Typically 30-45 days |
| Interest rates | Competitive variable rates | Varies |
| Transparency | No hidden fees | Fees may be unclear |
Fixed-rate HELOC alternatives
Home equity loan
A home equity loan delivers a lump sum of cash from equity at a fixed interest rate. These loans offer level monthly payments over a set term just like a fixed-rate primary mortgage.
Borrowers who want to avoid variable rates on their home equity cash should consider a home equity loan.
See more ways to compare home equity loan vs. home equity line of credit here.
Cash out refinance
A cash-out refinance replaces your entire mortgage with a new mortgage loan. The new loan will be bigger than your current loan's balance, providing cash back.
This option could allow you to both lower your interest rate and access cash from your home's equity.
Factors to consider when comparing HELOC options
- Interest rates: Compare fixed vs. variable HELOC rates.
- Fees: Watch for penalties or upfront costs from lenders.
- Repayment terms: Better’s HELOC offers flexibility with no early payoff fees.
- Draw/repayment periods: Confirm timelines for accessing and repaying your credit line.
Start using your HELOC in as few as 7 days
A fixed-rate HELOC sounds like a good idea, and some lenders offer this niche product.
Most homeowners still prefer a variable-rate HELOC's flexibility and simplicity.
Apply for Better’s fast HELOC today and access your home’s value in as little as 7 days!
....in as little as 3 minutes – no credit impact