Do HELOCs have fixed rates?
Traditionally, a Home Equity Line of Credit (HELOC) comes with a variable interest rate, which means that the interest charged is based on a financial index that varies. As the financial index moves up and down based on economic factors, the interest rate charged to the borrower will fluctuate.
Today, more and more lenders are starting to offer a fixed interest rate option for HELOCs. Although it's possible to get a fixed rate HELOC, they are still not as common as variable rate HELOCs.
At Credit Union of Southern California (CU SoCal), we make getting a Home Equity Line of Credit (HELOC) easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.
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What are HELOCs and how do they work?
A
HELOC can be used for any type of expense, including home renovations, buying a second home or investment rental property, paying for college tuition, and paying-off high interest credit card debt.
A HELOC is a type of loan which is secured by the equity in your home.
When approved for a HELOC you’ll be given a line of credit which you can use like a credit card. Typically, HELOCs have a variable interest rate which is charged only on the amount of money you use, not the entire credit limit. For example, you may be approved for a $100,000 line of credit, but if you use $50,000 you will only be charged a variable interest rate on that amount.
What is a fixed-rate HELOC?
A fixed-rate HELOC may start with a variable interest rate which can be converted to a fixed interest rate. The HELOC fixed rate option may be advertised as a hybrid HELOC because it combines fixed and variable interest rate options.
A variable interest rate is one that changes up or down as it follows the financial
index selected by the lender. Variable interest rate loans will have varying monthly payments because of fluctuations of the financial index the loan is based on.
Can you get a fixed-rate HELOC? How and when you can lock in a fixed interest rate or convert to a fixed interest rate depends on the loan conditions specified by the lender.
As with
home equity loans, a HELOC is a type of
second mortgage. If you fail to repay the loan the lender is allowed to foreclose on your property.
Advantages to a fixed-rate HELOC:
Avoid interest rate fluctuations. A fixed interest rate HELOC eliminates unpredictable monthly repayments; however, there are times when a variable interest rate will save you money if the index goes down. Conversely, a variable interest rate could cost you more in the long run if the index rises.
Predictable repayments. A fixed interest rate provides predictability and stability, which can reduce repayment anxiety and help you maintain your budget as you pay back the loan.
May be possible to revert to variable rate. Increasingly, lenders are offering options for switching between a fixed and variable interest rate.
Is it possible to convert a variable-rate HELOC to a fixed-rate HELOC?
Depending on the lender, it is possible to convert a HELOC to fixed rate, even if you started with a traditional variable interest rate HELOC. However, not all lenders offer this option.
Can you get a fixed-rate HELOC?
Here’s how two common ways to get a fixed rate HELOC:
Refinance your current HELOC. Your first step should be asking your current lender if they offer a fixed-rate or hybrid HELOC. If a variable rate to fixed-rate conversion is allowed, be sure to ask if you will be charged any fees for making this change. If converting to a fixed rate is not possible, the next best move is to apply for a new fixed-rate HELOC.
Apply for a fixed-rate HELOC. If you already have a variable-rate HELOC that cannot be converted to a fixed rate, the simplest thing to do is apply for a fixed-rate HELOC with a lender who offers this option. In this case you’ll pay off the existing HELOC using funds from the new loan.
HELOC alternatives
Here are some other popular loans to consider:
Cash-Out Refinance: With mortgage interest rates very low, refinancing your current mortgage to a new mortgage loan could help you lower your monthly payments. Getting cash-out means borrowing more than what you owe on your current mortgage and getting a cash disbursement of the extra funds at closing. You can use the cash any way you choose.
Home equity loans. A
home equity loan is similar to a HELOC because the money you borrow is secured with the equity of your home. However, a home equity loan has a fixed interest rate, and you pay interest on the entire loan amount, whether you use any of it or not.
Personal Loans: Credit unions and banks offer a wide variety of
secured and unsecured personal loans to meet a wide variety of borrowing needs. You’ll find variable and fixed rate
personal loan options.
Is a fixed-rate HELOC worth it?
A HELOC fixed-rate option is worth it if you’ve run the numbers and are confident that a fixed-rate HELOC meets your financial needs. Just remember, a HELOC is secured by the equity in your home and failure to repay the loan can result in the bank foreclosing on your home.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Loan Today!