Is it worth it to get a HELOC rate lock? What the experts say

If you’re hit with a surprise expense and have equity in your home, a home equity line of credit (HELOC) can be more favorable than other types of loans or credit cards, especially right now. HELOC rates are low compared to other borrowing options, after all, but they are typically variable, meaning that the rate on your HELOC can change over time. However, some lenders allow you to take all or a portion of your HELOC and lock in rates with a fixed-rate option. 

We’re in an uncertain interest rate environment currently. Inflation in January rose 3% from the year before, based on the latest Bureau of Labor Statistics (BLS) data. On top of that, the Fed has put any rate cuts on hold. In this economic climate, interest rates are changing week to week. To mitigate uncertainty, you may be able to get a HELOC rate lock at no cost or with a $50 fee, which would lock in your current rate, “fixing” it to today’s rate climate. This can lead to more predictable payments, despite what will happen with interest rates. 

But is that a smart move to make right now? Here’s what experts say about whether a HELOC rate lock is worth it or not. 

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Is it worth it to get a HELOC rate lock? What the experts say

First, let’s cover why a HELOC can be a powerful tool that can help you in a variety of situations. Whether it’s a surprise expense or a budget shortfall, tapping the equity in your home may help you avoid high-interest credit cards. 

“Unfortunately, folks run into issues with maybe sending a child off to school…obviously illnesses can sometimes result in the need for debt and a home equity line of credit is just a really great opportunity to fulfill that need,” says Jeff Ruben, president of WSFS Mortgage.

Ruben explains that the terms are typically up to 30 years. The draw period is how long you can borrow from the line of credit and is typically a 10-year period. The repayment term could be up to 20 years. 

As noted above, HELOC interest rates are typically variable but some lenders offer the option of a HELOC rate lock. This essentially allows you to turn some or all of the home equity line of credit into a fixed-rate option. In a constantly fluctuating interest rate environment, a HELOC rate lock can be appealing, but there are important considerations to think about first. 

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Crunch the numbers 

While a HELOC rate lock can provide some peace of mind with predictable payments, crunch the numbers to make sure it’s worthwhile. 

“If you’re thinking about locking your HELOC rate, the first step is to run the numbers and think about your plans. If you’re planning to pay off or close your HELOC soon, locking in probably isn’t worth it. Why pay extra fees if you won’t keep the loan long enough to benefit?” says Steven Glick, director of mortgage sales at HomeAbroad, a fintech platform offering mortgage solutions to global investors. 

It’s important to note that fixed interest rates may be slightly higher than variable rates. Currently, home equity line of credit interest rates are on a downward trajectory. However, a fixed rate could potentially help when rates are uncertain and could increase. 

Let’s say you take out a $100,000 HELOC with an average rate of 8.06%. HELOC daily rates are always changing, so imagine if rates go up 15 basis points to 8.21%. 

In the first scenario, you would pay $8,060 in interest per year. In the second scenario, you would pay $8,210 in interest per year. That’s a $150 difference annually. Whether a rate lock is worth it or not for that amount of savings depends on the term. If the repayment term was 20 years, that savings could jump to $3,000 in total. 

“For borrowers with a large HELOC balance, even small rate increases can add up. If you plan to keep your HELOC balance for a long time, locking in now shields you from rate volatility,” says Glick.

But as Glick also notes, you must consider any fees and costs that could be affecting what you might save to see if it’s really worth it. Some lenders may allow you to unlock your fixed rate and revert back to a variable rate. But this may not be the case in every instance, so discuss this with your specific lender. 

Look at minimums, terms and fees

Before getting a HELOC rate lock, be sure to look at the following:

• Minimums: You typically must convert a certain minimum to get a HELOC rate lock, which could be $2,000 up to $5,000, but it depends on the lender. 
• Annual fees: Some banks or lenders may charge an annual fee that could be between $50 and $75. 
• Early termination fees: You may face early termination fees if you end your term within a certain window. This can vary by lender and be a percentage or flat rate, for example, 1% or up to $500. 
• Terms: Look at which term options are available, which impact both your monthly payments and how much interest you’ll pay over the life of the loan.

The portion to lock with a fixed rate 

You may have the flexibility to lock only a portion of your HELOC into a fixed-rate option. Consider how much you might want to lock. 

“You can lock down part of your HELOC while leaving the rest of it open. If you just remodeled a kitchen for $35K, you can lock down that $35K with a fixed rate while leaving the rest of the HELOC open for emergencies,” says Steve Hill, lead mortgage broker for SBC Lending.

Also, understand how it may affect your payments. 

“When you lock down part or all of your HELOC, it generally converts to a fixed rate, fully amortized loan, meaning you start paying down the loan balance each month as part of the loan,” says Hill.

When to look into a HELOC rate lock 

The general sentiment among experts is that the Fed is not currently looking to cut the federal funds rate at its upcoming meeting due to inflation ticking back up. However, lately, HELOC rates have declined, so it may not be the best time to do a HELOC rate lock. But when inflation rises, the Fed may raise interest rates and it could be a good time to lock in a rate. 

“If interest rates are expected to rise, locking in now can help you avoid future hikes and keep your payments predictable. If you rely on predictable monthly payments for budgeting, a rate lock can help,” says Glick. 

The bottom line 

A home equity line of credit rate lock can be a unique tool if you want to convert all or a portion of what you borrow to a fixed rate. It provides more security and predictability. Whether it’s worth it largely depends on your term, the rate, and where interest rates are going. Before making any moves, do your research, crunch the numbers and review your options.