Fixed-Rate HELOCs: A Cross Between HELOCs and Home Equity Loans - Credible News

A fixed-rate HELOC gives borrowers the best features of both a home equity loan and a home equity line of credit.
Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.

Read more” > Amy Fontinelle Edited by <a href="" class="entry-meta__tooltip" data-tooltipjs="" data-tooltipjs-hover="true" data-tooltipjs-placement="top" data-tooltipjs-close-on-outside-click="true" data-tooltipjs-title="Credible’s editing process includes rigorous fact-checking by experts to ensure that all content is accurate and up-to-date. This article has been reviewed, edited, and fact-checked by Chris Jennings. As a Credible authority on mortgages, Chris covers topics including home loans and mortgage refinancing. His work has appeared in Fox Business and GOBankingRates.Read more” > Chris Jennings Updated August 11, 2021
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Many people borrow against the equity in their home to make home improvements, pay for medical expenses, or cover tuition costs. To do this, they’ll often take out a second mortgage — a home equity loan or home equity line of credit (HELOC). These loans make it possible to borrow large sums at low rates, as long as you’re willing to put your house up as collateral.
Traditionally, choosing between these loans meant choosing between a fixed interest rate with a home equity loan or a variable interest rate with a HELOC. But with a fixed-rate HELOC, you get the best of both worlds.
Here’s what you need to know about fixed-rate HELOCs:

A fixed-rate HELOC is just that: a home equity line of credit with an interest rate that doesn’t change.
Normally, HELOCs carry an adjustable interest rate. However, adjustable interest rates come with drawbacks that many borrowers find unappealing, a key one being fluctuating monthly payments.
People may be reluctant to take out a loan when they don’t know how much it will cost them in the long run or what they’ll owe from month to month. And lenders might struggle to collect what borrowers owe when a rate increase makes loan payments unaffordable.
HELOCs and home equity loans are both considered second mortgages, but there are some distinct differences between the two:
The initial interest rate of a HELOC is usually lower than the rate on a home equity loan, but the rate can adjust as often as once a month as rates in the broader market change.
This is where fixed-rate HELOCs come in handy. A fixed-rate HELOC is like a cross between a home equity loan and a regular HELOC. It gives you the flexibility to draw on a credit line at your convenience along with the option to lock in your rate on the sums you borrow, reducing the uncertainty in what you’ll pay per month.
You won’t find fixed-rate HELOCs at Credible, but for another way to tap your home equity, consider a cash-out refinance. Credible can help you check refinance rates from all of our partner lenders. Checking rates with us is safe and simple — and it won’t impact your credit score.
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If you’re considering a fixed-rate HELOC, you’ll want to understand the pros and cons before you apply.

A fixed-rate HELOC is just one of several options for borrowing against your home equity. Consider these three alternatives to fixed-rate HELOCs to decide what’s best for your situation.
Best if: Your HELOC is just for emergencies.
If you have no plans to actually use your HELOC but want to know the money is available to borrow in case of an emergency, then it makes sense to stick with a traditional, variable-rate HELOC.
This way, you won’t be paying interest on money you might never use, like you would with a home equity loan. And you might be able to enjoy a lower interest rate down the road.
Best if: You know how much you want to borrow and how long you need to pay it back.
A home equity loan is very similar to a fixed-rate mortgage. If you know that you need $100,000 to build an addition to your home, replace the roof, and paint the exterior — and that paying the money back over 20 years will be affordable — then a home equity loan can be a good choice.
However, if rates drop, you’ll have to refinance your home equity loan to secure a lower rate.
Check Out: Second Mortgage vs. Home Equity Loan: Understanding the Difference
Best if: You want to borrow a lump sum and get a lower rate on your first mortgage.
Maybe your first mortgage rate is 5% and you could get a rate of 3.5% by refinancing — but you also want a lump sum to pay off your high-interest debt.
A cash-out refinance could be your most cost-effective option in this case. However, the closing costs can be substantially higher compared to a second mortgage.
Keep Reading: Home Equity Loan vs. Personal Loan: Which Is Right for You?
Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.
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