Should I consider a fixed-rate conversion for a HELOC if rates are rising?

If rates are rising and you hope to save on interest payments and better predict future payments, you might want to consider a fixed-rate conversion for a HELOC. 

A home equity line of credit, or HELOC, works in two parts. The first part is when you get to make draws on a line of credit based on your approved amount, and the other is when you have to pay back what you borrowed.  

During both parts you will be required to pay interest on the amount you borrowed. 

If you have a variable-rate HELOC, the interest you pay could change according to the market. If rates are on the rise, the interest you will have to pay on your borrowed amount will be on the rise as well. 

One of the easiest ways to convert from a variable- to fixed-rate HELOC is by refinancing your HELOC. 

What is a fixed-rate HELOC conversion?

A fixed-rate HELOC conversion allows you to change from the unpredictability of a variable-rate HELOC to the predictability of a fixed-rate HELOC. Depending on your lender, you have two options when looking to convert your HELOC to a fixed rate.  

Some lenders will let you convert part or all of the amount you have drawn to a fixed rate for a set number of years, while keeping your remaining draws on your line of credit variable. This option avoids refinancing but usually comes with a small fee. 

If you are open to refinancing your HELOC, you have more options. You can refinance your variable-rate HELOC into another fixed-rate loan that accesses your home equity, such as a home equity loan or fixed-rate HELOC. You could also switch to a cash-out refinance, which will combine your primary mortgage and HELOC into one loan that could come with a fixed rate. 

How do rising rates affect my HELOC?

If your HELOC has a variable rate, rising rates could have a significant effect on your payments. Since you are required to make interest payments throughout the life of your HELOC, rising rates will regularly increase your monthly payments with a variable-rate HELOC.  

Rising rates increase the amount of interest you pay and could make it difficult to plan for future payments. 

When does a fixed-rate conversion make sense for my HELOC?

If you are looking for more stable payments or worried about rising rates, a fixed-rate conversion for your HELOC might make sense. 

Converting a variable-rate HELOC into a fixed-rate HELOC will show you the interest rate you will have for the remainder of your loan. Having this one rate for the life of your loan will protect you against any rises in interest rates and allow you to better predict future payments. 

When a fixed-rate conversion may not be worth it

The main reasons that may make a fixed-rate conversion not worth adjusting are current rates and the cost of conversion. 

If current rates and the fixed-rate you will get on your HELOC are higher than your variable rate, your loan payments will be higher, so it may not be worth altering your HELOC right now.  

Switching your HELOC will come with costs to cover the new loan and terms. This may offset some of the savings you are hoping to get out of your fixed rate. Check to see that the savings you would get with a fixed rate are more than what it will cost to covert. 

What are my options for a fixed-rate conversion?

Here are some of the options available if you are considering a fixed-rate conversion on your HELOC. 

1. Refinance a HELOC into a new HELOC

If you like how a HELOC is set up but don’t want to have your rate change with the market, talk to your lender about refinancing to a fixed-rate HELOC. This will let you continue to draw on your line of credit while having more stable interest payments. 

Refinancing to a new fixed-rate HELOC could require a new application and home appraisal, as well as come with refinancing costs. 

2. Replace a HELOC with a home equity loan

A home equity loan typically comes with a fixed rate and offers a lump-sum based on the equity in your home, instead of a line of credit. When you replace your HELOC with a home equity loan, you will lose your revolving line of credit and will have to pay interest on your total loan amount. 

3. Do nothing and manage variable rates

If a fixed rate does not feel like the right choice for you at the moment, you can always stick with and manage your variable-rate HELOC. If you choose to stay with your variable-rate HELOC, make sure you keep an eye on where rates are to see when it could be a good time to get a fixed rate. 

How can I connect with a HELOC refinance expert?

You will be connected with a professional Loan Officer who can help you with a HELOC refinance when you begin an online HELOC application with a trusted lender. The Loan Officer you are connected with can look at your financial situation and help you decide what refinance options are the best for you as well as answer any other questions you may have. 

Connect with a Loan Officer when beginning your HELOC refinance application today. 

_{Savings, if any, vary based on consumer’s credit profile, interest rate availability, and other factors. Restrictions apply.} 

_{The variable rate home equity line of credit (HELOC) is an open-end product where the borrower can withdraw funds and make interest only payments during the draw period. Monthly payments will increase to include both principle and interest payments after the draw period has ended. A minimum 90% of the total approved HELOC amount must be disbursed. The remaining 10% of the approved credit line can be drawn down later as needed during the draw period. The monthly variable interest rate is based on an Index, which is the Prime Rate published in the Wall Street Journal plus a fixed margin. This product is currently only available in Arizona, California, Illinois, Massachusetts, and New Jersey. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Property type, loan-to-value, and FICO restrictions and requirements apply. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate for more information and to discuss your individual circumstances. Restrictions Apply.}