What is a variable-rate HELOC?

A variable-rate HELOC allows homeowners to tap into their property’s equity with interest payments that change with the market. 

A HELOC, or home equity line of credit, offers borrowers an amount based on their home equity that they can draw on as they need, similar to a credit card. HELOCs work in two periods: draw period and repayment period.  

During your draw period, you will be able to access funds up to your approved amount while only paying interest on the amount you use. During your repayment period, you will no longer be able to access funds and will have to pay back your principal loan with interest. 

If your HELOC has a variable rate, the interest rate you pay at the start of your loan tends to be lower for a specified amount of time. After this, you will notice that your interest payments will change with current mortgage rates. The frequency of which your interest rates vary will depend on your lender and what they offer. 

Does a variable-rate HELOC sound like the right choice for you? Start your application today. 

No, not all HELOCs are variable rate.  

Some lenders offer fixed-rate HELOCs that don’t change with current mortgage rates. The funds you receive from either a variable-rate HELOC or fixed-rate HELOC can be used for any expenses you may have. 

Talk to a Loan Officer or lender and find out which they offer and decide whether a variable-rate or fixed-rate HELOC is best for you. 

The main difference between a fixed-rate and variable-rate HELOC is the predictability of your payments. 

During the life of your HELOC, you will pay interest on the amount you borrow. The interest you pay will be alongside repaying the amount you borrowed during the draw period. 

A fixed-rate HELOC will lock you into one interest rate and keep those payments consistent every month during the entirety of your loan.  

With a variable-rate HELOC, you will start with a lower interest rate that could change with fluctuations in the market. 

The rate borrowers pay on variable-rate HELOCs is tied to the prime market rate. This rate is typically set by the Federal Reserve and influenced by the federal fund rate. 

When the Fed changes its prime market rate, the amount you pay on a variable-rate HELOC will follow. When the Fed moves the rate up, your payments could rise. And when the Fed drops rates, you could pay less. 

Borrowers looking for a lower initial rate or planning to pay off their loan quickly might want to choose a variable-rate HELOC. 

Many variable-rate HELOCs begin with an interest rate lower than what could be offered through other loan types. Borrowers looking to save money at the start of their loan could benefit from a variable-rate HELOC. Since initial rates are lower, those planning to pay off their loan quickly might want to choose the lower starting rate a variable-rate HELOC offers. 

If you believe that the Fed will cut rates, you could also consider choosing a variable-rate HELOC. 

If you are looking to apply for a HELOC with a variable rate, you can start the process by filling out an online application. 

When you start an online application, you will be connected with a professional Loan Officer. A Loan Officer can answer any questions you have about your application or variable-rate HELOC. When approved for a variable-rate HELOC through an online application with Rate, you can get access to your funds in as little as five days. 

Ready to apply for a HELOC with a variable rate? Start your HELOC application online today! 

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_{Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. Rate does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.}