Most HELOCs come with variable interest rates that can increase or decrease as the market shifts. This is terrific if rates drop and you can save money, but if rates rise, you could pay more interest than expected.
Converting your HELOC from a variable interest rate into a fixed-rate loan can be wise because it allows you to lock in your APR before it rises further.
Here’s everything you need to know about converting HELOCs, which products offer fixed rates, and how to know when it’s time to make a move.
In this guide:
- What is needed to convert a HELOC to a fixed-rate loan?
- How does the fixed rate on a HELOC work?
- What are typical fixed rates?
- How might my payments change if I convert my HELOC to a fixed-rate loan?
- Will I pay fees to convert a HELOC to a fixed-rate loan?
- Can I convert my fixed-rate loan back to variable if interest rates fall?
- Do I need to contact a new lender to convert my HELOC to a fixed-rate loan?
- What are the cons of converting my HELOC to a fixed-rate loan?
- How long does it take to convert a HELOC to a fixed-rate loan?
What is needed to convert a HELOC to a fixed-rate loan?
If you have a variable-rate HELOC you’re looking to convert, you have four primary fixed-rate options:
- A fixed-rate HELOC.
- A fixed-rate home equity loan.
- A cash-out refinance.
- A personal loan.
Each product has unique eligibility requirements, especially when moving debt from a HELOC.
HELOC lenders may allow you to convert some or all of your variable-rate HELOC to a fixed rate during the draw period.
The details can vary by lender:
- A lender may only allow you to “lock in” new HELOC withdrawals at a fixed rate rather than convert existing debt.
- Your lender might allow you to convert part of your current balance from a variable to a fixed rate but limit it to a specific period or dollar amount.
You may be able to initiate a fixed-rate conversion during your HELOC’s draw period. But once you enter the repayment period, your lender might not allow this option.
If your remaining home equity, income, and credit score allow you to qualify, you may also be able to take out another HELOC through a new lender. You could use this second line of credit to “refinance” your HELOC at a fixed rate, but be sure to calculate your options and the additional costs of the new line of credit.
Home equity loan
A home equity loan is similar to a HELOC in that both give you access to a portion of your home’s current equity. A home equity loan is different because it is a lump-sum installment loan rather than an open line of credit. Home equity loans are often available with fixed interest rates.
If you qualify and have the additional home equity available, you can convert a variable-rate HELOC balance into a fixed-rate debt by taking out a home equity loan. This gives you a reliable monthly payment and interest rate, and it allows you to pay off your existing HELOC balance.
If your lender offers it, you may be able to roll your HELOC balance into a fixed home equity loan. You can sometimes keep your HELOC open after the rollover, allowing you to continue borrowing against your remaining home equity.
Some lenders won’t allow for this, instead requiring you to borrow a new home equity loan from the lender of your choice and use those proceeds to pay off some or all of your HELOC debt. Once you pay off the HELOC, you can keep the line of credit open or close the account altogether. This option is only available if you have enough home equity after factoring in your mortgage balance and HELOC.
Another home equity-based option is the cash-out refinance loan. This involves taking out a new mortgage loan against your property and tapping into your available equity as a cash disbursement.
This new loan then replaces your mortgage with its interest rate and terms. Unlike a HELOC or home equity loan—which give you a second monthly payment on top of your mortgage loan—a cash-out refinance leaves you with just one balance and monthly payment.
As with HELOCs and home equity loans, you can only withdraw a portion of your equity through a cash-out refinance, often up to a loan-to-value ratio (LTV) of 70% to 90%. If you have enough equity remaining, you may be able to use a cash-out to consolidate and refinance both your mortgage loan and your HELOC balance with a fixed interest rate.
Depending on how much you owe, you may also be able to “refinance” your HELOC with the help of a personal loan. This means taking out a personal loan and using the funds to pay off your remaining HELOC balance. You’d then repay the personal loan each month as agreed.
Using a personal loan to refinance a HELOC balance won’t always be an option. Some personal loan lenders set a maximum of $30,000 to $50,000; if you owe more than that on your HELOC, you’ll come up short. You might also pay a higher interest rate on a personal loan than your HELOC since personal loans are unsecured.
Of course, being unsecured is is a benefit of a personal loan over a HELOC since your property isn’t collateral on the loan. You may find it more straightforward to get a personal loan since extra steps such as a home appraisal aren’t required.
How does the fixed rate on a HELOC work?
Depending on how the lender sets up the product, fixed interest rates on HELOCs can work differently.
Some lenders let borrowers convert their HELOC to a fixed rate for the remainder of their draw period. Others may apply fixed rates (also known as rate locks) to a number of individual draws based on when the money is withdrawn. When a lender allows for fixed rates on specific HELOC withdrawals, the borrower is often limited to a certain number of rate locks.
What are typical fixed rates?
Interest rates on all home equity products can vary based on the following:
- Market rates
- Your location
- How much you’re looking to borrow against your home
- Length of your term
- Your credit score
- Your debt-to-income ratio (DTI)
These factors make it challenging to cite “typical” fixed rates. But you may notice trends related to interest rates between these products.
Since a cash-out refinance replaces your mortgage loan and provides you with a cash withdrawal against your home equity, it moves into the first-lien position. If you default on your loan repayment, your cash-out refinance lender has first dibs on your property. Interest rates tend to be lower for this product compared to other home equity options because of this.
Average interest rates on home equity loans are similar to those for HELOCs, but they’re often a bit lower. This is likely due to the risk involved: While a home equity loan is a single borrowing event, a HELOC opens up a line of credit to pull from at any time during the draw period.
On average, HELOC rates are slightly higher than cash-out refinance and home equity loans. However, many lenders reserve the lowest HELOC rates for borrowers choosing an introductory and variable interest rate. Borrowers who opt to lock in a fixed-rate HELOC may pay higher rates.
How might my payments change if I convert my HELOC to a fixed-rate loan?
The draw period on a HELOC lasts about 10 years, offering the opportunity to withdraw funds as needed up to your line of credit. As you borrow money, you’re often only required to pay interest on your balance throughout the draw period. Once the repayment term starts, you’ll switch over to principal and interest payments, which are higher.
A cash-out refinance or home equity loan with a fixed interest rate mean your payments won’t change over time. You’ll get a monthly payment obligation at the start of the loan, which covers both principal and interest payments over the repayment term. Your payments won’t rise because both are lump-sum installment loans, so you can’t borrow against the account again.
If you convert your HELOC balance to a fixed-rate loan option, expect your payment obligation to change.
Will I pay fees to convert a HELOC to a fixed-rate loan?
The costs to convert a HELOC to a fixed-rate loan depend on several factors, including the type of loan you choose, when you convert the balance, credit score, and income.
If your lender allows you to roll a variable-rate HELOC balance into a fixed-rate HELOC or home equity loan, you may be able to get fees waived.
If you borrow from a new lender, though, expect fees to be passed on to you, including:
- Application fee
- Loan origination fee
- Appraisal fee (if required)
- Annual fee
Certain lenders offer credits or to pay closing costs when you take out a new loan. If you close the account early, you may need to repay those waived expenses. Check with your current HELOC lender to see if you’ll be subject to early prepayment penalties to pay off and close your HELOC account.
Can I convert my fixed-rate loan back to variable if interest rates fall?
Once you’ve moved a variable-rate HELOC to a fixed-rate home equity product, you can’t change it again quickly. However, if rates fall in the future, you have several options to “convert” your debt again and take advantage of the savings.
Take out a new HELOC or home equity loan
Depending on your home equity, taking out another loan or line of credit—at current rates—can be a way to refinance your debt. You can use those proceeds to pay off some or all of your most recent fixed-rate balance and reduce the interest you’ll pay.
Refinance your mortgage loan (again)
Whether you took out a home equity loan, rolled into a new HELOC, or used a cash-out refinance last time, you can refinance again when interest rates are more favorable. Refinancing allows you to lock in the available rate, and you may even withdraw additional equity.
Just note the fees involved with a refinance could cancel out any savings you’d recognize from a rate drop, so be sure you speak to your lender about this before proceeding.
Ask your lender to renegotiate your rate
It never hurts to ask; if your lender knows you’re shopping for a new loan, it might be willing to reduce your rate. If rates have dropped since you locked in your fixed rate, consider calling your lender to ask about your options. The lender may have a conversion product available or be willing to offer a reduced rate in exchange for your loyalty.
Do I need to contact a new lender to convert my HELOC to a fixed-rate loan?
Depending on your lender and situation, it may make sense to contact your current bank first to convert your HELOC.
You already have a relationship with that lender, so a loan swap could be more straightforward in some cases. You may also get more competitive terms as your lender attempts to keep your business.
Your lender may be able to:
- Swap your variable-rate HELOC for a fixed-rate HELOC.
- Offer a fixed rate on your HELOC balance for a promotional period (for example, 12 months).
- Refinance your HELOC balance into a home equity loan.
- Refinance your HELOC balance into a personal loan.
Not all lenders offer these products, so your experience may vary. However, your lender can often be an excellent place to find out what options are available.
If your current lender is unable (or unwilling) to offer a competitive fixed-rate solution, you’ll want to shop around with other lenders. Finding a new lender can add time and effort to the search, but it can also allow you to compare your options and find the best terms.
What are the cons of converting my HELOC to a fixed-rate loan?
You should consider the advantages and disadvantages of any financial product.
The potential downsides of converting a variable-rate HELOC into a fixed-rate product include the following:
- Rates could continue to drop. It’s anyone’s guess when interest rates will bottom out at their lowest point. If you don’t time it perfectly, rates could continue to trend down after you lock in a fixed rate.
- You might lose your line of credit. Depending on how the conversion is done, you could lose your remaining time with your HELOC’s draw period. If you were leaning on that line of credit for future emergencies, unexpected expenses, or large purchases, you might be out of luck.
- You could incur additional costs. Regardless of which product you choose, you could be responsible for certain closing and origination costs as part of the account-opening process. Some lenders will waive these fees or even absorb them, though you could still need to reimburse them if you pay off and close the account too soon.
How long does it take to convert a HELOC to a fixed-rate loan?
Converting a variable-rate HELOC into a fixed-rate product can take a couple of days to a month or more, depending on your chosen product.
If your lender allows you to roll your balance into a fixed-rate home equity loan, you might be able to accomplish it in a matter of days. The application and underwriting process can take much longer if you apply for a brand-new product, especially with a new lender. If the lender requires a home appraisal, expect it to take weeks in some cases.
If you’re applying for a new product through another lender, expect to go through the entire application process again.
Check out our guide to the best fixed-rate HELOCs if this option makes sense for you.