Fixed-rate HELOC options: What you need to know

Can you get a HELOC with a fixed rate?

Unlike their close relative home equity loans — which come with fixed interest rates — home equity lines of credit traditionally come with variable rates. However, many lenders now offer “hybrid” or “convertible” HELOCs. These allow you to convert some or all of your loan amount to a fixed rate.

These convertible or “fixed-rate HELOCs” can be complex, so learn about the different options available and take time to compare them. Make sure a hybrid HELOC would save you money compared to a standard HELOC or a fixed-rate home equity loan.

In this article (Skip to...)

• Fixed-rate options
• Pros and cons
• Are fixed rates better?
• Convertible vs. standard HELOC
• HELOC vs. home equity loan
• Should I fix my HELOC rate?

Fixed-rate HELOC options

It’s up to each lender how to structure its fixed-rate HELOC options. So there’s no standard model for this loan type. Here are a couple of the options you might see:

Two fixed-rate HELOC options:

1. Fixed at closing: Some lenders may let you fix the rate on your HELOC at closing. However, these seem to be increasingly rare. And they often come with higher setup fees and starting interest rates than standard HELOCs
2. Fixed draws: A more common type of “fixed-rate” HELOC allows you to lock the rate on withdrawals you make from your line of credit. But you have to do so at the time you make the draw. And you may have to pay a modest fee

Be aware that some lenders restrict the number of times you can fix the rate on a HELOC draw. One lender we checked capped the number of fixed-rate draws at five over the life of the loan. If your HELOC rules are similar, you’ll want to use your fixed-rate opportunities strategically. Don’t lock the rate on small draws if that will later stop you from fixing it on big ones.

You might even choose to draw down your entire line — or a big chunk of it — in one go. That would effectively turn your HELOC into a fixed-rate installment loan, like your mortgage, with all the security and predictability those provide.

Of course, that would almost make your HELOC into a home equity loan. So you should compare which of those gives you the best overall deal. We cover that below.

Risks of a hybrid fixed-rate HELOC

There’s a big downside to using one of these convertible HELOCs. Hybrid HELOCs we’ve looked at warn that the interest rate at which you can fix a draw may be “different” from the variable rate applied to your account at that time. We suspect that “different” is code for “higher” — at least during times when rates are rising.

The whole point of variable rates is that they pass the risk of general rate increases onto borrowers and away from lenders. Why would lenders take back that risk without charging a premium rate?

So, each time you weigh whether to fix the rate on a draw, you need to get a quote from the lender to see how high that rate will be. And you might want to search the web for economists’ and analysts’ forecasts of where rates are likely to head in the coming months and years.

Pros and cons of hybrid fixed-rate HELOCs

A hybrid or convertible HELOC can bring some real benefits:

Pros

• All the flexibility and affordability of a normal HELOC
• All the security and predictability of a fixed-rate mortgage or home equity loan. A.K.A., peace of mind

But these loans may also come with some downsides.

Cons

• May be more costly than a standard HELOC, at least initially. But may end up less expensive if interest rates keep rising
• There could be caps on the number of times you can fix the rate on draws

Be sure you read the Truth-in-Lending disclosure you will receive from lenders when you apply for a HELOC. These should lay out the basics of the loan agreement.

And, if you’re still unclear about any of the issues raised in this article, ask lenders about them. If their responses are critical to your borrowing decision, get them in writing.

Is a fixed-rate HELOC better than a variable rate?

A hybrid fixed-rate HELOC could certainly end up being cheaper than a variable-rate one. But whether or not that’s true will depend on what happens to interest rates in the future.

If rates continue to soar, fixing any loan you can is likely to be smart. But, if rates plateau and then fall, it may cost you to revert back to a variable rate — assuming your lender lets you do so at all.

The trouble is, nobody knows for sure what’s going to happen. When looking at markets, interest rates, and the broader economy, financial media are full of terms like “unknown territory,” “weird,” and “unpredictable.”

At the time of writing, even the Federal Reserve was feeling this way, unsure of how high to hike rates in order to tame runaway inflation.

So, deciding whether to fix your HELOC rate has more to do with your personal tolerance for risk than any measurable external factors. If you’re cautious, you’ll likely value the peace of mind a fixed-rate HELOC can bring. If you’re a gambler, you might prefer to wager on rates falling sooner rather than later.

Standard vs. fixed-rate HELOC costs

HELOCs that allow you to fix the interest rate at closing typically come with higher rates and upfront fees than other home equity lines. So you could end up paying more — unless rates rise substantially, in which case the locked rate will save you money.

The more common form of hybrid HELOC, which offers a rate-lock option when you borrow from your credit line, is pretty much the same as any other HELOC — until you take that fixed-rate option. Then you’ll pay a usually small fee and will almost certainly have to accept a higher interest rate on the portion of your balance you fix.

Fixed-rate home equity loans vs. HELOCs

If you’re going to fix the rate on some or all of your HELOC borrowing, why not just go straight for a home equity loan?

Home equity loans almost always come with a fixed rate right from the start. Plus, they’re a supremely safe and predictable way to borrow: You get a lump sum upfront and make the same monthly payment every month for the life of your loan.

Actually, home equity loans are better than fixed-rate HELOCs for some homeowners. But not all.

Suppose you’re a contract worker or in the gig economy. Chances are, your income varies widely from month to month or season to season. A HELOC lets you borrow during bad times and repay during good ones. And when you’re not actively borrowing from the credit line, you won’t have to make any interest payments.

Or imagine you need short-term financing. With a HELOC, you pay interest only on your monthly balance. So, as soon as you pay that balance off, you can stop making payments. It’s up to you whether you continue using your HELOC for other reasons. Just be sure the line of credit you choose doesn’t have annual fees, prepayment penalties, or other charges that might trip you up.

So, HELOCs and home equity loans are both affordable ways to borrow. And neither is inherently better than the other. You just have to choose the one that suits your needs better.

For more information, see: HELOC vs. home equity loan: Pros and cons.

Should I get a fixed-rate HELOC?

The choice will be determined largely by your tolerance for risk. If you’re naturally cautious with money, you’ll probably value the safeness and predictability a fixed-rate HELOC can bring. You know where you stand and you won’t get into trouble if interest rates suddenly rise.

You do, however, risk interest rates suddenly falling, leaving you with a rate that’s more expensive than necessary. There’s a good chance you’ll be able to buy your way to a lower rate. But it might cost you. And, unless you need the flexibility of a HELOC, you might want to think about a home equity loan instead.

Your next steps

If you’re considering a fixed-rate HELOC, make sure you take a look at home equity loans, too. These come with fixed rates and payments from the start and may be an easier alternative. In any case, your loan officer can walk you through all your options and help you find the best one for your needs.

Once you’ve decided on what you’re looking for, begin comparison shopping. Rates and loan setup costs vary widely between lenders and you’ll want to get several quotes to find the best deal you can.