Converting to a Fixed-Rate HELOC

Converting to a fixed-rate HELOC is something that many homeowners do at some point. The HELOC can be a very beneficial loan product if used properly. However, many people do not like the adjustable rates that often come with these products and would like to convert to a fixed rate instead. Here are a few things to consider about converting to a fixed rate HELOC.

Traditional HELOCs

The term "HELOC" stands for "home-equity line of credit." This is a loan product that allows a homeowner to tap into the equity in her home. With this type of arrangement, you can take out money whenever you want to as long as you do not exceed the balance of your equity in the home. You will have a draw period, when you are free to take money out of the equity. Then you will have a repayment period in which you are required to repay the money that you borrowed. Many people love these loans because they provide them with flexibility. The only problem with them is that their interest rates fluctuate up and down based on a financial index. If the financial index increases over the course of the year, your interest rate is going to increase as well.

Why Convert to a Fixed Rate?

By converting your home-equity line of credit to a fixed-rate product, you will be able to take advantage of several benefits. First of all, you will be able to avoid interest rate risk. With many home-equity lines of credit, your interest rate could continue to increase over the years. By locking in the interest rate, you will not have to worry about outside influences any longer. In addition to this, you will be able to count on a regular payment every month. Many borrowers prefer the stability that comes with making the same payment every single month.

Refinancing

One way that you can get a fixed rate is to refinance your mortgage. By refinancing your mortgage, you can get enough money to pay off your existing mortgage and your home-equity line of credit. You will then have one loan to work with and only one payment to make. Your mortgage is going to be a fixed rate, and it will be amortized over a period of 30 years. This will effectively lower the amount that you are paying every month and give you longer to pay off the balance.

Convert to Home-Equity Loan

Many home-equity lines of credit come with a feature that allows you to convert into a traditional home-equity loan at some point. For example, after their draw periods are up, many home-equity lines of credit allow you to convert them to regular home-equity loans. This will provide you with a fixed interest rate and a fixed payment instead of the traditional adjustable interest rate that you get with a home-equity line of credit.

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