- Some lenders will let you convert some or all of your HELOC balance into a fixed-rate sub-loan while keeping your credit line open.
- Other fixed-rate HELOC conversion options include refinancing into a new fixed-rate HELOC, taking out a home equity loan, or doing a cash-out refinance.
- Borrowers with a low interest rate on their primary mortgage may want to consider a new fixed-rate HELOC or home equity loan, while those with an above-market rate may save with a cash-out refinance.
A home equity line of credit (HELOC) can be an effective tool for tapping into your home’s built-up equity when interest rates are low. However, as rates rise, a variable-rate loan like a HELOC can lead to higher, unpredictable payments.
As such, many homeowners opt to convert their variable-rate HELOCs into fixed-rate loans to regain payment stability and protect against future rate increases. We’ll examine some of the most practical options for doing so and discuss which borrowers are best suited for each type of conversion—often called a fixed-rate HELOC conversion.
How to Convert a HELOC to a Fixed-Rate Loan
In most cases, converting a HELOC to a fixed-rate loan means refinancing the amount you owe into an entirely different mortgage product—such as a cash-out refinance, a home equity loan, or even another home equity line of credit.
Some lenders, however, may let you convert some or all of your balance into a fixed-rate portion that functions more like a traditional installment loan, with predictable payments over a set term—often called a fixed-rate sub-loan.
Fixed-Rate HELOC Conversion
Depending on your lender’s policies, you may be able to convert some or all of your HELOC balance into a fixed-rate loan while still retaining access to your remaining line of credit. Not all lenders offer this option; those that do typically allow borrowers to divide their HELOC balance into a limited number of fixed-payment portions, each with its own locked interest rate. These are often called “rate-locked sub-loans,” and most lenders cap how many you can have at once.
Another option is to refinance your current balance into a brand-new HELOC. While some lenders offer HELOCs with fixed rates from the start, this typically involves transferring your balance to a new loan and then requesting a fixed-rate lock from the new lender.
Pros and Cons of a Fixed-Rate HELOC
- Pro: Provides stable and consistent payments that are easier to budget for
- Pro: Can protect you from higher payments in a rising interest rate environment
- Pro: Allows you to still access your remaining available line of credit
- Con: You must immediately begin making principal payments on the fixed-rate balance
- Con: You could be locked into an above-market rate if interest rates decrease in the future
- Con: Not usually possible to convert with your existing HELOC during its repayment period
Cash-Out Refinances
A cash-out refinance involves replacing your existing primary mortgage with a new, fixed-rate loan while consolidating your HELOC balance. With a cash-out refinance, you generally borrow a larger amount than if you refinance into another HELOC or a home equity loan, since you’re also refinancing your first-position mortgage.
Because it’s an entirely different loan, a cash-out refinance means incurring a full set of closing costs—typically ranging from 2% to 6% of the refinanced amount—and establishing a new repayment term, which could extend the length of time you pay on your home.
That said, converting your HELOC through a cash-out refinance does provide predictable monthly costs and a single mortgage payment rather than two. Keep in mind that upfront fees will likely be higher, and resetting your term may result in paying more interest over the life of the loan.
Home Equity Loans
A home equity loan is a type of second mortgage—similar to a HELOC—that sits alongside your primary loan rather than replacing it. Home equity loans typically come with fixed rates, allowing you to refinance your HELOC into a new loan with stable monthly payments while keeping your existing first mortgage intact.
Converting a HELOC into a fixed-rate home equity loan often makes the most sense for borrowers with a below-market rate on their primary mortgage, or whose HELOC balance is relatively small compared to their total mortgage debt. The trade-off is that you’ll be managing two separate loans and two separate monthly payments.
Cash-Out Refinance vs. Home Equity Loan
Here’s a look at how cash-out refinances and home equity loans compare across key factors.
| Cash-Out Refinance | Home Equity Loan | |
| Mortgage Type | First mortgage | Second mortgage |
| Rate Type | Typically lower fixed rate | Typically higher fixed rate |
| Closing Costs | Typically higher | Typically lower |
| Typical Credit Requirement | 620+ in most cases | 680+ in most cases |
| Payments | Single monthly payment | Two monthly payments |
| Best Use Cases | Replacing a high-rate first mortgage | Retaining a low-rate first mortgage |
Note: These credit score figures reflect general market guidelines. Refi.com requires a minimum score of 660 for conventional cash-out refinances and 620 for FHA cash-out refinances.
Similarities
Both cash-out refinances and home equity loans:
- Offer a fixed interest rate with consistent monthly payments
- Use your home as collateral—missing payments on either could put your property at risk of foreclosure
- Require minimum credit scores and maximum debt-to-income ratios, though specific requirements vary by lender
Differences
It’s the differences between these two products that make each better suited for different scenarios. Here’s a closer look at the key distinctions.
Closing Costs
Both loan types typically carry closing costs ranging from 2% to 6% of the loan balance. However, you’ll generally pay more at closing with a cash-out refinance because many fees are based on loan amount—and a cash-out refinance wraps in your entire first mortgage balance.
If your HELOC balance accounts for most of your mortgage debt, the difference may be minimal. Borrowers with a large first mortgage and a relatively small HELOC balance, however, would likely see meaningful upfront savings by refinancing into a home equity loan instead.
Repayment Term
Cash-out refinances typically carry a 30-year repayment term—though 15- or 20-year options are available. The 30-year term is most popular because it offers lower monthly payments, though it results in higher lifetime interest costs.
Home equity loans tend to have shorter repayment schedules—most range from 5 to 20 years, though some lenders offer 30-year terms. If your goal is to pay off your HELOC balance as quickly as possible, a home equity loan may be the more practical choice. If minimizing your monthly payment is the priority, a cash-out refinance’s longer term may have the edge.
Interest Rates
Rates vary depending on your financial profile and lender, but cash-out refinances typically come with lower interest rates because they’re first-position loans. Home equity loan rates are generally higher since, as a second mortgage, the lender takes on more risk—it wouldn’t recover its funds until the first-lien holder is paid in full. That added risk typically translates to a rate that’s a couple of percentage points higher than a cash-out refinance.
Homeowners with a below-market-rate primary mortgage would generally be better served by a home equity loan. Those with a relatively large HELOC balance—or who can meaningfully reduce their primary mortgage rate—should consider a cash-out refinance. Use the Refi.com blended rate calculator to compare your options side by side.
How Much Can You Borrow With Each Option?
The total amount you can borrow varies based on your home’s value, your existing equity, and the lender’s specific limits.
A cash-out refinance generally allows you to borrow a larger overall dollar amount since it wraps in your existing mortgage balance. Fixed-rate HELOCs and home equity loans, on the other hand, can allow access to a larger percentage of your home’s value relative to the amount you’re borrowing against.
In most cases, you can borrow up to:
- Cash-Out Refinance: 80% of your home’s appraised value
- Fixed-Rate HELOC: 85% to 90% of your home’s appraised value
- Home Equity Loan: 85% to 90% of your home’s appraised value
Keep in mind that if your primary mortgage and the HELOC you’re converting have a combined loan-to-value (CLTV) above 80%, a cash-out refinance may not be an option unless you pay down a portion of the balance at closing.
Should You Convert a HELOC to a Fixed-Rate Loan?
Converting a HELOC to a fixed-rate loan can be a smart move for many borrowers—but it’s not the right call for everyone. Here’s a quick guide to which option tends to fit which situation best.
Keep in mind that these aren’t hard rules. The best path forward depends on your individual situation, so it’s worth speaking with a knowledgeable lender before making a final decision.
Choose a Cash-Out Refinance When…
- You’re able to lower the interest rate on your existing primary mortgage.
- Your HELOC balance makes up the majority of your mortgage debt.
- You want to simplify your budget by consolidating into a single monthly payment.
Choose a Home Equity Loan When…
- You have a highly favorable rate on your existing primary mortgage.
- Your HELOC balance makes up a small portion of your overall mortgage debt.
- You prefer a shorter repayment term and don’t want to extend your primary loan.
Choose a Fixed-Rate HELOC When…
- You can convert your HELOC into a fixed-rate loan with your existing lender.
- You may still want to access your line of credit in the future.
Keep Your Existing Variable-Rate HELOC When…
- You believe interest rates will decrease in the near future.
- Your current financial situation does not support making principal payments on your balance.
Shopping Lenders
If you plan to convert your HELOC to a fixed-rate loan, shopping lenders for the best deal can help you save meaningfully on your interest rate and closing costs.
Some key things to keep in mind when comparing lenders:
- Different types of lenders have their own pros and cons. Mortgage brokers may offer access to a wider variety of loan options, while local banks and credit unions may offer more competitive rates or easier approval.
- When comparing options, look at both the interest rate and the annual percentage rate (APR), which accounts for other loan costs.
- You can negotiate both the interest rate and many closing costs. Use competing loan estimates to your advantage and make lenders compete for your business.
- Shopping with multiple lenders within a 45-day window is treated as a single inquiry on your FICO score.
Ready to Convert Your HELOC to a Fixed Rate?
Converting your variable-rate HELOC to a fixed-rate loan can bring real stability to your budget—whether that means locking in a rate with your current lender, refinancing into a new fixed-rate HELOC, or rolling everything into a cash-out refinance or home equity loan.
At Refi.com, we specialize in helping homeowners find the right refinance solution for their situation. Start your application with Refi.com today and get a personalized look at your fixed-rate conversion options.
