Alternate name: Fixed-rate home equity line of credit
For example, if you have taken two HELOC advances of $5,000, both with variable annual percentage rates (APRs), you may be able to opt to convert one to a fixed-rate APR. Your HELOC then would have two balances: one with a fixed APR and the other with a variable APR.
How a Fixed Rate HELOC Works
Most HELOCs come with a variable APR, meaning the APR is tied to a market rate such as the prime rate. Your HELOC APR—and your monthly payment—will go up and down whenever the index rate changes. With a fixed-rate HELOC, however, some or all of the balance has a fixed interest rate, which does not change for a specific term. One type of fixed-rate HELOC offers a fixed interest rate at the opening of the account that automatically applies to all your credit-line advances. Another type of fixed-rate HELOC combines both fixed- and variable-rate balances on the same credit line. You have the option to lock in a portion of your balance at a fixed rate with a fixed term, or even switch between fixed and variable APRs to take advantage of lower interest rates. The rate you receive is based on your credit, balance, and the term you choose, and could be higher than the variable rate. Lenders may charge a fee to convert a draw to a fixed rate. During the term, payments on the fixed-rate part of the balance will cover both the principal and interest, allowing you to pay off the principal on or before the maturity date. As you pay down the principal, that amount becomes available for you to receive during the draw period. The lender may limit the number of fixed-rate draws you can have outstanding at once, and there may be a minimum draw amount for the fixed-rate portion of your balance.
