What is a fixed-rate HELOC, and how do they work?

What is a fixed-rate HELOC?

A HELOC, or home equity line of credit, is a revolving credit line that typically has a variable interest rate — as the interest rate changes, so will the minimum amount due each month. But there’s also a less common kind of credit line: a fixed-rate HELOC, which charges the same percentage of interest each month, keeping your minimum payments stable.

Much like with a fixed-rate mortgage, the interest rate on a fixed-rate HELOC balance won’t change for the length of the term. The fixed-rate portion can be locked in for terms ranging from five years to 30 years, during which time the loan is paid back like a typical mortgage, says Joe Perveiler, home lending product executive at PNC Bank.

Fixed rate vs. variable rate

Traditional, variable-rate HELOCs have long been the predominant type, and they continue to be the most widely offered. The interest rate on traditional HELOCs changes with the fluctuations in other interest rates, based on the benchmark rate set by the Federal Reserve. For that reason, the variable rate translates to some uncertainty when planning your monthly household budget, while a fixed-rate HELOC’s payment can’t fluctuate.

Fixed-rate offerings are becoming more common: Lenders began adding them amid the soaring-interest-rate environment of the last two years. Even though HELOC rates have been softening since late 2024, lenders are continuing to offer the option.

Generally, the terms — length of draw period and repayment period — are the same on both types of HELOCs. However, the fixed-rate variety might impose parameters on borrowing that you won’t have with a variable rate. In addition, HELOCs with a fixed rate typically have higher initial interest rates than traditional ones, says Laura Sterling, vice president of marketing at Georgia’s Own Credit Union. (You’re paying for the privilege of that rate freeze, in other words.) Fixed-rate HELOCs might charge higher origination and maintenance fees than comparable traditional ones, too.

How does a fixed-rate HELOC work?

In most ways, a fixed-rate HELOC operates the same as the variable variety. You can withdraw as much or as little of your credit line as needed, whenever you need it. You will only pay interest on the sums you actually withdraw.

Typically, lenders will let you freeze some or all of the balance on your HELOC when you establish it, or at any point during the draw period, says Sterling. They might limit how many times you can lock in a fixed interest rate, though, and some lenders will require a minimum balance to switch to a fixed interest rate. Some may also require that you borrow a minimum amount to lock in the rate.

Depending on your lender, you might be able to lock the rate yourself through your online account, or you may need to contact a representative to do so.

Can I convert an existing HELOC to a fixed rate?

Yes, if rates drop below your fixed amount, it may be possible to convert your fixed-rate HELOC to a variable one. “Some lenders may allow the borrower to convert back to a variable rate,” says Sterling. The ability to switch back and forth between variable and fixed rates allows you to take advantage of lower interest rates when they become available.

If you open up a new hybrid HELOC, you can even use it to refinance your existing HELOC — you’ll simply pay off the balance of your old HELOC using funds from your new line of credit. This strategy will also give you a new draw period.

Pros and cons of a fixed-rate HELOC

As with any financial product, there are both benefits and drawbacks associated with a fixed-rate HELOC. Here are some of the considerations to keep in mind.

Pros

• Avoiding interest-rate fluctuations: Variable HELOC rates can change as often as monthly, following fluctuations in the prime rate or whatever index your loan follows. But if your HELOC rate is fixed, you won’t have to worry about interest-rate trends or market movements.
• Stable, predictable payments: When you have a consistent interest rate, you know exactly how much your monthly payment will be. This can help with budgeting and planning for other expenses.
• Locking in for the long term: HELOCs can be very long-term debt, as long as 30 years. A lot can happen to interest rates in that time. But with a fixed-rate HELOC, you can grab a good rate and hang on to it, so you’re guaranteed a low rate for the duration.

Cons

• Higher interest rates and fees: The interest rates on fixed-rate HELOCs are often higher than traditional ones. Plus, many lenders charge a fee when you lock a rate. Other closing costs and fees — such as the origination and account maintenance fees — may also be higher with a fixed HELOC.
• Harder to find: Fixed-rate HELOCs are becoming more popular, but they still aren’t as widely available as their traditional counterparts. If your lender does offer them, you might be required to have a minimum balance before converting to a fixed rate, or the lender might mandate a minimum or maximum amount whose interest rate you can freeze.
• More complex bookkeeping: If you convert only part of your balance or take out additional funds after your rate lock, you’ll have to keep track of the amount you’re paying back at a fixed rate plus how much you’re paying back at a variable rate. (Your statement should delineate the amounts, but it’s still a bit complicated.)

Is a fixed-rate HELOC right for me?

Which type of HELOC is best for you really depends on your priorities. For example, if you fear inflation, a fixed-rate HELOC might be the smarter move — that way, regardless of what happens with the economy, you’ll still have the security of a fixed rate. However, if interest rates decline, a regular HELOC’s adjustable rate will benefit you, while you won’t get the benefit if your rate is locked. If you think rates have bottomed out, and that they’ll soon be on the upswing again, switching your variable HELOC to a fixed rate can be a good strategy.

In deciding between HELOC options, ask yourself:

• What’s the interest rate environment? “If you are in a rising-rate market, a fixed-rate HELOC could be a good option,” says Sterling. “If you anticipate rates remaining low, you may save more with a traditional HELOC.”
• Is there a set amount you need to borrow? “Establishing a fixed-rate lock on a HELOC can often make sense when a customer has a planned expense they need to finance, such as a home renovation project,” says Perveiler. “In that scenario, the customer will have full certainty about the cost of their financing.”
• Are you comfortable with payments that could change over time? “If the answer is no, a fixed-rate HELOC could be a good choice,” says Sterling. If it’s yes, a traditional variable-rate HELOC will work just fine — just be sure to budget for potential big jumps, especially when your repayment period begins.

FAQs

• How does a fixed-rate HELOC compare to a home equity loan?

• Can you pay off a HELOC early?

Additional reporting by Taylor Freitas