What is a Home Equity Line of Credit?

With interest rates reaching levels not seen in years, many consumers are taking a close look at their spending and borrowing needs to evaluate their options.

One borrowing option that can be particularly valuable to homeowners is a Home Equity Line of Credit (HELOC). An optional feature to consider with most HELOCs that can be beneficial as interest rates rise is the ability to lock in a fixed rate, depending on your lender.

What is a HELOC?

A HELOC is a revolving credit line, like a credit card but typically offering a lower interest rate. Homeowners can borrow funds against the equity they’ve built in their home, which they can then draw funds from for up to 10 years with up to 20 years to repay the loan.

How Does Locking a Fixed-Rate for a HELOC Work?

As interest rates continue to rise, locking in a fixed-rate for HELOCs can provide homeowners an opportunity to borrow for home repairs, renovations, and more, but with a fixed-rate loan for the total loan amount or a portion of the loan.

If the fixed rate offered is lower than the variable rate you’re currently paying, locking in your HELOC to a fixed rate can provide you with consistent payments each month. One of the main benefits of doing so is that you will go from making interest-only payments if you haven’t locked your rate to making interest and principal payments by locking your rate, which can help you save money over the term.

The options and terms and conditions for locking in a fixed rate will vary by lender, so it is important to know:

• When you can convert your HELOC to a fixed rate.
• How often you can lock and unlock a fixed rate.
• Minimum and maximum amounts and terms for locking your rate.
• Any fees associated with locking your rate.

Go Deeper: There is no one-size-fits-all solution when it comes to your unique borrowing needs. Explore your various loan options and consider scheduling an appointment with your local banker to discuss what works best for your needs.