What Is a Fixed-Rate HELOC?

A fixed-rate home equity line of credit, or HELOC, is a line of credit you repay at a fixed rate of interest. It allows you to use a revolving line of credit, similar to a credit card, so you can borrow up to your limit, and pay down your balance to reuse the credit line. While a credit card is unusually unsecured, a HELOC is secured by the equity in your home.  That makes a HELOC a mortgage loan — a second mortgage, if you already have a mortgage loan.

How does a fixed-rate HELOC work?

Some HELOCs have fixed rates on part of the balance, or on the entire loan balance, for the entire term of the loan. Others are variable-rate loans that allow you to lock in a fixed rate for some or all of your balance, whether temporarily or for the entire loan term. You’ll select the fixed-rate option when you first take out the loan or during the time you’re allowed to draw out cash from your line of credit.

“HELOCs are best for homeowners with substantial equity in their homes who require money for projects such as renovation, education, or debt consolidation,” says Reilly James Renwick, chief marketing officer at Pragmatic Mortgage Lending. “They are particularly helpful if one requires flexibility — that is, drawing money over time rather than all at once.”

During the draw period, which typically lasts for 10 years, you can draw money against your credit line whenever you want. Although you’ll make interest payments on these draws, you won’t have to make principal payments. But you may repay some or all of the principal and reuse the credit line.

After the draw period ends, the repayment period begins. You won’t be able to draw more money from the credit line at this point, and you’ll begin repaying the loan principal in addition to all of the interest that has accrued.

HELOC repayment periods usually last 10 to  20 years. You’ll pay the same amount each month on the portion of your loan balance that has a fixed rate, and your last scheduled payment will repay that amount in full.

Pros and cons of fixed-rate HELOCs

HELOCs in general, and HELOCs with fixed interest rates in particular, have benefits and risks you should be aware of.

Here are some fixed-rate HELOC pros and cons:

How to obtain a fixed-rate HELOC

It’s a good idea to compare rates and loans from different lenders to ensure that you get the lowest available rate and the most favorable loan terms. A good first step is to pick a few fixed-rate HELOC lenders to compare, and request a quote from each. 

Once you’ve decided which lender to apply with, gather the documentation you’ll need for your loan application. That might include:

• Social Security number
• Employer’s name, address, and phone number
• Driver’s license or other government-provided photo ID
• Most recent pay stubs, 1099s, and other income statements
• Two most recent W-2 forms
• Two most recent federal income tax returns

Many lenders have online applications, but you can also call or make an appointment at a local branch office. The lender will provide the annual percentage rate, lender fees, the draw and repayment terms, and other important information when or before you apply.

The lender will schedule the closing after it approves your loan, and it’ll send you a disclosure as required by the Truth in Lending Act a few days before closing. This disclosure has the loan information you received when you applied, including the final terms. Ready it carefully as soon as you receive it. In most cases, you’ll have three days after you receive the disclosure to cancel the loan. 

Is a fixed-rate HELOC right for you?

A HELOC might be a good idea if you have enough equity in your home to qualify, and you want the ability to borrow against it periodically rather than receive the funds in a lump sum. Common uses for HELOCs include home remodeling and major repairs, college tuition, debt consolidation, and other major expenses.