HELOC options & alternatives

If you’re a homeowner, a home equity line of credit (HELOC) can seem like an easy way to withdraw funds when you want. However, HELOCs may have specific withdrawal and repayment periods and often feature fluctuating variable interest rates.

Checking your HELOC options

If you’re deciding whether to apply for a HELOC and want to know what kind of options you have, learn how HELOCs work and how home equity alternatives can offer similar financing with their own appealing options.

Fixed vs. Variable HELOC rates

Most lenders that offer HELOCs as a variable-rate product and sometimes promote a 0% introductory annual percentage rate (APR). While variable rates may start at lower rates than a comparable home equity loan, an increase in rates may mean paying more in interest charges over time.

Some lenders may offer fixed-rate HELOCs. These might come with many of the same benefits as fixed-rate home equity loans. For example, the interest rate on a fixed-rate HELOC won't change even if the federal interest rate increases.

It’s important to compare different lenders when you’re looking for a loan, so that you can decide what works best for your financial situation.

HELOC withdrawal & repayment options

A HELOC is usually structured by two distinct terms: a withdrawal period (or draw period) and a repayment period.

During the draw period, you can make any number of withdrawals, up to the approved line of credit. Many HELOCs will allow you to pay only interest charges (not repaying the principal balance) on the balance of the withdrawals you made during the draw period.

The potentially lower monthly payments of a HELOC’s draw period are followed by the repayment period.

During the repayment period, you will have to pay both interest and start repaying the loan balance. This will push your monthly payments in the repayment period higher than they were during the interest-only draw period.

READ MORE: Home equity line of credit (HELOC): Requirements, terms, and repayment

Refinancing HELOCs

HELOCs, in most cases, can be refinanced for the purpose of debt consolidation, but this can have drawbacks. The closing costs and potential additional fees for each loan may increase the loan amounts.

If your variable-rate HELOC is too difficult to budget for, refinancing with a fixed-rate home equity loan can switch the fluctuating monthly payments of your HELOC to the fixed monthly payments of a home equity loan.