Lenders Love Fixed-rate HELOCs. Should You?  | Bankrate

Fixed-rate HELOCs are the talk of the town lately among home equity lenders and industry insiders. 

Home equity isn’t the flashiest corner of consumer finance, so it’s noteworthy when a buzzy new trend emerges. I talk with home lending experts all the time, and they keep telling me the same thing: Fixed-rate HELOCs are wonderful, innovative products designed with the consumer in mind, combining flexibility and stability in one cost-effective package. 

That kind of universal enthusiasm makes my spidey senses tingle. If something sounds too good to be true, it often is. In my 20-plus years as a personal finance and business reporter, I’ve learned that what benefits the industry doesn’t always benefit the consumer. So, I wanted to dig a little deeper to find out whether fixed-rate HELOCs are actually as good for homeowners as industry insiders are making them out to be. 

It turns out, these loans are a small part of the home equity landscape, but their share is growing. Five percent of HELOCs were fixed-rate in 2023, and that share rose slightly to 7 percent in 2024, according to the Mortgage Bankers Association. 

So are these new hybrids a savvy financial move, or are they simply the latest marketing twist in a changing mortgage market? And could this potential trap end up costing homeowners more in the long run?

The answers to these questions reveal that fixed-rate HELOCs could be the right fit for some people, but they probably aren’t an ideal fit for everyone as many lenders would have you believe. Here’s how to decide what’s right for you.

The appeal of fixed-rate HELOCs

A fixed-rate HELOC is exactly what it sounds like: it combines features of a home equity loan and a HELOC. While the details vary depending on the lender, the key feature is the option to set a fixed interest rate on some or all of your balance. A big draw of a fixed-rate HELOC is stability, making budgeting easier and protecting borrowers from rate increases.

“A fixed-rate HELOC with fully amortizing payments and no prepayment penalty or end-of-term balloon payment provides homeowners with the most consistent repayment expectations,” says Austin Kilgore, analyst with the Achieve Center for Consumer Insights, a think tank division of Achieve, a lender offering fixed-rate HELOCs. “Many homeowners prefer having this certainty in their HELOC borrowing experience.”

There are some other benefits of fixed-rate HELOCs, including:

Protection from rate hikes: A fixed-rate HELOC, unlike a variable-rate option, can protect you from future interest rate increases. For some homeowners, this peace of mind can be worth paying a slightly higher rate upfront. (More on that below.)

Continued access to funds: Even when you fix the interest rate for a portion of your HELOC, your remaining line of credit stays open and available. You can repay and re-borrow as needed during the draw period, something you can’t do with a traditional home equity loan.

Potential for lower overall interest: If you’re using your fixed-rate HELOC for a long-term project, locking in a rate now can prevent your total interest paid from climbing if rates rise.

Potential pitfalls of fixed-rate HELOCs

Of course, that sense of security and stable rates can come at a price. Most fixed-rate HELOCs share a few common features and risks to consider.

You may have to draw 100% upfront

Some lenders require you to take out the entire credit line at closing. “While this guarantees access to all the funds, borrowers will start paying interest on the entire balance from the beginning, even if all the funds are not needed right away,” says Cliff Auerswald, president at All Reverse Mortgage, a reverse mortgage direct lender based in California. “For borrowers who need to draw gradually, this can reduce flexibility.”

Rates tend to be higher

Fixed-rate HELOCs typically carry interest rates approximately one percentage point higher than variable-rate HELOCs, though the exact difference varies among lenders, explains Karen Mayfield, national head of originations for Multiply Mortgage, a mortgage lender and broker based in Colorado. “That’s the case because the lender is locking in that money for a certain period of time, and they don’t have interest rate protection.”

Managing multiple fixed-rate loans can get messy

Some lenders let you lock in multiple chunks of your HELOC at different fixed rates. Keeping track of several mini-loans, each with its own rate and term, can get confusing fast. Some lenders also have minimum amounts you can lock and a cap on how many lines you can lock.

You could miss out if rates drop

Locking in protects you from rising rates, but it also means you won’t benefit if rates fall later.

Fixed-rate HELOCs aren’t free

Like most loans, fixed-rate HELOCs come with fees. You might face charges for setting up the line, converting to a fixed rate or paying it off early.

10 questions to ask yourself before getting a fixed-rate HELOC

Fixed-rate HELOCs are not inherently worse than variable options; they just serve different needs. Understand what you are getting yourself into and how it fits into your financial situation. Here are 10 questions to ask yourself:

1. How long will I carry the balance? If you’re planning to pay off the HELOC quickly, a variable-rate option with a lower initial rate might make more sense.

2. Do I value flexibility or predictability more? If you prefer steady payments, a fixed-rate HELOC could be the way to go.

3. Am I okay paying a bit more for stability? Fixed-rate HELOCs usually cost a little extra, but for some homeowners, that might be worth the peace of mind.

4. What happens if I want to switch back? Ask your lender whether you can “unlock” or convert portions later if rates change.

5. Does my lender charge conversion or lock-in fees? Some banks charge small fees every time you fix or unfix a portion of your HELOC. Those can add up.

6. How stable is my income right now? If your income isn’t consistent, a fixed-rate HELOC or deciding against borrowing against your home altogether could be the better option.

7. What’s happening with interest rates? Keep an eye on market trends. Locking in when rates are already high could limit your future savings potential.

8. Do I plan to sell or refinance soon? If you’ll be moving or refinancing in the next few years, a fixed-rate HELOC may not make sense.

9. Have I compared this with other borrowing options? Check how a fixed-rate HELOC stacks up against alternatives like a personal loan, cash-out refinance, a home equity loan or a traditional HELOC.

10. What’s my exit plan? Think about how and when you’ll pay the HELOC off. Before locking in a rate, make sure the repayment timeline works for your budget.

The bottom line

For homeowners who crave flexibility in one package, fixed-rate HELOCs can make financial sense. However, fixed-rate HELOC rates are typically higher, and the product can be more complicated than their adjustable-rate HELOC cousins or even home equity loans. The key is understanding how they work and weighing the pros and cons before diving in.

“If ever there was a time to talk to a live human being and not get all of your information online, this is a perfect product, because there is a lot to know,” says Mayfield.

She also recommends asking two additional questions, the same ones she encourages for any financial product: “‘What question am I not asking that I should be? What don’t most of your clients know that you make a point to tell them that you haven’t told me yet?’ You’re the expert. I need you to tell me all the pros, all the cons, all the things to watch out for.”