Folks who currently have a home equity line of credit (HELOC) may be feeling a bit of a pinch at today's rising interest rates. HELOCs are adjustable-rate loans, meaning the interest rate you pay changes depending on a certain index (usually Prime Rate). And these days, rates are increasing, which means the cost and minimum payments of most HELOCs are increasing, too. Fortunately, most HELOC borrowers can convert their loan to a fixed rate. Here's how:
Refinance Your Home
One option available to many HELOC borrowers is to refinance their home for a
larger amount than their current mortgage, and using the additional borrowed
money to repay the HELOC. By choosing a fixed rate refinancing mortgage, you
essentially turn your HELOC balance into a fixed rate mortgage loan. This is a
great choice for folks who should be refinancing their home anyway, such as
anyone whose mortgage interest rate is higher than the current rates on the
market.
Convert it into a Home Equity Loan
Unlike a HELOC, a home equity loan usually pays out the cash in one lump
sum--and the rate is often fixed. Some HELOC borrowers may be able to convert
their HELOC into a fixed-rate home equity loan. Although you will no longer be
able to draw off the balance, you will get the current low-rate locked in for
the life of the loan. Check with your HELOC lender to see if this is an option
for you.
Get a New Home Equity Loan
If you are unable to convert your HELOC into a home equity loan through your
current lender, you may be able to obtain another home equity loan. If so, you
can use the money you borrow to pay off your HELOC in a do-it-yourself
conversion of HELOC to home equity loan. Search for lenders willing to work with
you by checking local banks and online loan companies.
If you currently have a HELOC, you're not stuck with a rising adjustable
interest rate. There are numerous options that can help you drop your HELOC
balance to zero and switch the balance to a less expensive, fixed rate loan.
For more information on either a
fixed rate HELOC
or a HELOC loan,
visit Carrie Reeder's website, ABC Loan Guide. While you're there, browse
through our recommended HELOC lenders.
