Can You Lock in a HELOC Rate?
A home equity line of credit (HELOC) is an open-ended revolving debt secured by the equity in your home.
The typical HELOC requires you to make interest-only payments on the amount you borrowed during your draw period. Once that ends, you enter the repayment phase, in which you can no longer borrow additional funds and must pay back the principal balance plus interest over several years. This interest rate is often variable, meaning it can change over time with market trends.
Rather than be at the mercy of fluctuating interest rates, you have options if you want to lock in a rate on your HELOC. Let’s discuss how to secure fixed HELOC rates, lock in rates on a current balance, and why it matters.
In this guide:
Can I lock in a rate on a new HELOC?
Variable interest rates—the most common rate on a HELOC—can rise and fall over time as market rates adjust. But depending on the lender and product you choose, you may be able to lock in a rate on a new or open HELOC.
These home equity products give borrowers an average draw period of 10 years, during which they can continue borrowing money as needed until they reach their credit limit. Afterward, borrowers will have up to 20 more years to pay off the debt with interest.
That isn’t a problem if interest rates stay stable or fall after you take out the HELOC. But if you see a significant rate increase, you could pay more interest than you anticipated, often on five- or six-figure debts.
You may consider taking advantage of one of the following options:
- Lock in your interest rate on a new HELOC.
- Find a HELOC that allows you to lock in rates as you borrow. This can be helpful if you see low interest rates but expect a market correction in the coming years.
Can I convert my HELOC from a variable rate to fixed?
In some instances, you may request to convert your variable-rate HELOC to a fixed-rate line of credit. Only specific lenders allow this, and it could be costly. You may pay additional closing costs and fees in many cases, and you’ll often get a higher fixed interest rate than your current variable rate.
Another option some HELOC lenders allow is to lock in your rate at certain intervals in the borrowing term. This allows you to lock in a rate as you go, ensuring you always know what you’ll pay on your debt.
Many lenders that allow for rate-locking intervals limit the times you can exercise this option (three to five is common). The rate lock may only last for a certain period, so you’ll need to pay off the balance before the lock expires if you don’t want your rate to change.
Can I lock in my prequalified HELOC rate?
Some lenders allow you to prequalify for a HELOC. After a “soft” credit check (which doesn’t affect your credit score), lenders get a limited view of your credit history. They can determine whether you may qualify for a HELOC, how much you can likely borrow, and your expected interest rate.
But a prequalification isn’t a formal application, so these terms are subject to change. Depending on the outcome of your home appraisal (if the lender requires it), a hard credit check, or the underwriting process, the lender could adjust your original HELOC terms. Your rate, draw period, and repayment period could shift. The lender might even offer a different limit on your line of credit.
Because of these factors, you can’t always lock in a prequalified HELOC rate. It’s when you apply and get approved for your line of credit that you lock in the terms.
How does the fixed rate on a HELOC work?
There are two types of fixed rates for HELOCs.
Fixed-rate HELOC
If you have a fixed-rate HELOC, your rate will remain the same. So if you have a 10-year draw, the money you borrow in month one is subject to the same interest rate as the money you pull out in month 120—and in the repayment period. Whether you withdraw funds once or five times, the HELOC interest rate is the same.
Variable-rate HELOC
If you have a variable-rate HELOC that allows you to lock rates at defined points, you may find that some draws are subject to a different rate than others. For example, if you withdraw funds at two different times, and your variable rate changes between the first and second draw, you’ll see different interest charges on these debts until you pay them.
Your HELOC balance might look like this:
- $20,000 at 6.5% APR
- $15,000 at 8.25% APR
Important note: The interest rate you lock in may not be the current rate. It could be the current rate plus a certain percentage based on where you are in the draw period.
Here’s an example:
1 – 24 months: current HELOC APR
25 – 84 months: current HELOC APR + 0.25%
85 – 120 months: current HELOC APR + 0.50%
So let’s say you’re in month 26. Because rates appear to be rising, you want to withdraw funds while the current HELOC rate is 6.5% APR. You can do that, but your lender will lock you in at 6.75% APR instead of today’s 6.5%.
What are typical fixed rates for HELOCs?
Interest rates on HELOCs, and all consumer debt products, have a tendency to make regular shifts, so the rates you see today could well change tomorrow. They could look much different in six months or a year.
At the time you apply, fixed rates tend to be higher than the introductory rates on variable-rate products (but not necessarily for the full term). This is true for HELOCs as well as home equity loans, personal loans, and auto loans.
As the borrower, you have two choices:
- Lock in a safe, predictable fixed rate, but risk market rates falling.
- Opt for a variable rate that’s more competitive today but may rise or fall in the future.
For qualified borrowers, fixed HELOC interest rates tend to range from the single digits to the low teens. However, this is subject to change based on creditworthiness, your home’s equity, location, and, of course, market conditions.
Can I choose between a fixed and variable rate for each withdrawal I make from my HELOC?
Lenders tend to offer HELOCs in one of two “flavors”: variable-rate products or a fixed interest rate for the life of the account.
In most cases, you will need to commit to one when you take out your line of credit, and it will apply to all future withdrawals. HELOCs often come with variable rates.
But even if you take out a HELOC with a variable interest rate, you may have the option to lock in fixed rates as you go. With rate-locking, you can enjoy the benefit of a variable rate that might decrease while reserving the right to lock in lower rates on withdrawals before rates increase.
This feature isn’t available on all HELOCs. Be sure to speak with your lender to see what fixed- and variable-rate options it offers before you finalize the account.
Do any other terms change if I convert my variable-rate HELOC to a fixed rate?
Over time, you might decide your variable-rate HELOC isn’t the right product for you, and you would prefer a fixed-rate line of credit instead.
In some cases, your current lender may be willing to convert the HELOC from variable rates to fixed. If it won’t allow for fixed-rate HELOCs or is unwilling to convert your account, you may need to see about refinancing your HELOC with another lender instead.
No matter which choice you make, expect your HELOC terms to change.
This could mean:
- Your new fixed rate is higher than your current variable rate.
- New draw period or repayment period terms.
- Reduced credit line.
- Your lender may change your minimum withdrawal requirements.
- Additional closing costs or other fees.
If my current lender doesn’t let me lock in my rate, can I refinance with a new lender that will?
You’re unhappy with your existing variable-rate HELOC and would prefer a product with a fixed interest rate, but your lender won’t allow for a rate lock. What should you do?
Your options include the following:
- Apply to refinance your HELOC through another lender, which may offer better terms.
- Take out a fixed-rate home equity loan instead, and use the proceeds to pay off your HELOC balance.
- Opt for a cash-out refinance with a fixed rate, and satisfy your HELOC debt with those funds.
- Borrow an unsecured personal loan to effectively refinance the HELOC.
You may encounter fees with any of these choices. You might also find it more challenging to qualify for a new product with a new lender since your HELOC balance will now count against your debt-to-income ratio (DTI).
If you plan to secure the new debt with your home’s remaining equity, note you may have a lower credit limit the second time because most banks lend according to your combined loan-to-value ratio (CLTV).
This ratio accounts for your current home equity and all liens against your property, including your original mortgage, a second mortgage, and home equity loans or lines of credit. Most lenders limit their maximum CLTV to between 70% and 85%. So if you have a home valued at $400,000, and your lender’s maximum CLTV is 85%, your liens can add up to no more than $340,000.
If you owe $250,000 on your first mortgage and have a $70,000 HELOC balance, you might expect to tap into $20,000 in home equity based on the math in the following example:
$340,000 max CLTV – ($250,000 mortgage balance + $70,000 HELOC balance) = $20,000 equity remaining
However, you may not meet the lender’s minimum HELOC withdrawal or home equity loan requirement.
Are there cons to locking in my HELOC rate?
Locking in your HELOC’s interest rate might not be the best option in some instances. The most significant disadvantage can be that rates drop afterward.
So if you lock in a competitive rate today, you could save yourself from higher rates in the future. But if rates drop, you miss out on a lower rate.
You’ll also find that with most lenders, fixed interest rates are higher than variable rates at the start of the loan. Because of the added risk a borrower takes on with a variable rate, lenders tend to offer more competitive introductory rates.
Check out our article if you want to know more about how often the APR on a HELOC can change before you decide.
What lenders offer the option to lock in my HELOC rate?
In our research, we found three lenders that provide this option.
Figure
Figure offers HELOCs of up to $400,000 with an online application and funding in as little as five days. Figure HELOCs are subject to an origination fee of up to 4.99% on the initial draw.
(This depends on your credit score and the CLTV on your home.)
With Figure, you lock in rates when you draw funds. They’re based on your creditworthiness and the origination fee you choose to pay. You can redraw up to 100% of your HELOC limit after repaying the debt at then-current interest rates.
Read our review of Figure’s Home Equity Line.
Bethpage
Bethpage borrowers can withdraw as much as $1 million of their home’s equity with a HELOC with no origination fees or closing costs.
These HELOCs offer three options:
- A fixed-rate HELOC loan option enables you to lock in the rate on up to three separate draws of $10,000 or more.
- An introductory fixed rate.
- A variable rate.
You can also consider refinancing your variable-rate HELOC debt into a fixed-rate product later with one of Bethpage’s fixed-rate home equity loans.
Read our review of Bethpage’s HELOC.
Chase Bank
Chase borrowers can opt to lock in some or all of their HELOC withdrawals with an optional rate-lock feature, which allows you to freeze your interest rate for a specific period (12 months up to two months before your HELOC’s maturity date) as long as you lock in the rate on $1,000 or more.
Check out our review of Chase’s HELOC.
Published at Tue, 29 Nov 2022 08:45:35 -0600
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By USAG-Humphreys on 2022-11-28 15:52:14