Fixed Rate Home Equity Loan – Is it Right for You?

Are you keen to know more about a fixed rate home equity loan? It could be the perfect choice if you are looking for a large sum of money at lower interest rates. However, it requires your home’s value as a pledge to pay back the loan. 

In this friendly guide, we’ll cover:

•  Understanding what a home equity loan is
•  Knowing the real cost of a bad home equity loan
•  Learning the uses of home equity loans
•  Exploring the benefits and downsides of a home equity loan
•  Finding out the usual payback time for a fixed rate home equity loan

Each month, over 6,900 people visit our website to understand secured loans – you’re not alone! We understand that you might be nervous about making a wrong decision, but our aim is to support you in making an informed choice. 

Is a fixed rate home equity loan right for you?

If you have enough home equity to access one of these loans and need the funds for a specific reason then it could be a smart decision. Home equity loans can offer you large credit that otherwise wouldn’t be available and with lower interest.

But you should also consider a HELOC with a variable rate of interest. You may be able to save even more using a HELOC but it will not provide you with any guarantees and you will not be 100% sure of how the interest rate will change. 

The decision comes down to personal situations and preferences, and it’s best to seek qualified advice from the outset. Some alternative options include unsecured and secured loans, credit cards, remortgaging, lifetime mortgages and reverse mortgages. 

Does a home equity loan typically have a fixed interest rate?

Most home equity loan companies will provide these products with a fixed interest rate. With fixed interest, you will know exactly how much interest you are going to pay for the lifetime of the loan repayments, making it easier to budget for all your loan repayments accurately. 

The fixed rate you receive will account for any drastic changes in the future, and to protect themselves, lenders often charge more than is needed to mitigate their own lending risk. Nevertheless, the rates are still lower in comparison to many other loan types. 

What is the benefit of a fixed rate home equity loan?

The benefit of having a fixed rate on your home equity loan is the understanding of how much you need to repay in any situation, regardless of changes in interest rates. This should provide clarity and make it easy to work out your monthly budget. 

Where to find home equity loans (fixed rate)

Fixed-rate home equity loans are available from some banks on the high street, building societies, and online creditors. However, at the time of writing and subject to change, most lenders widely advertise home equity line of credit products more than fixed-rate home equity loans. 

This might be because it is easier for the lender to offer a variable rate that changes over time than it is to plan for a long-term repayment period with a fixed rate. Even most fixed-rate mortgages are only fixed for so many months or years before switching to variable-rate mortgages. 

Nevertheless, you can still find some fixed-rate options online. You might just have to dig a little deeper and go beyond Google’s first page. 

Home equity loans for all purposes

• Stuck paying high interest on credit card debts & loans?
• Looking to fund a home improvement project?
• Dreaming of finally taking the once-in-a-lifetime trip?

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Fixed-rate home equity loan calculator

Most lenders now provide a loan calculator on their website pages, including fixed-rate home equity loan calculators where applicable. These calculators can be sued to give you an estimate of how much you will be asked to repay plus interest based on the amount you want to borrow and the repayment term. 

However, these calculators don’t usually include personal finances and don’t take into account credit scores. Use them for information but take them with a pinch of salt. 

What is the usual repayment period for a fixed rate home equity loan?

Home equity loans can be repaid in just a few years up to as long as two decades. The length of time you need to repay will be determined by how much equity you want to release and your personal financial situation. The time you need to repay may also have an effect on the interest rate you are offered.

Is fixed or variable interest better?

There is no easy answer to this question because it is time-sensitive. If you believe that interest rates are going to rise then it is better to lock in a lower fixed rate for as long as you believe they will rise. But if you think interest rates will go down, then a variable rate will prevent you from overpaying interest on a loan or mortgage. 

Home equity loan vs HELOC

A home equity line of credit (HELOC) is similar to a home equity loan, but instead of receiving a lump sum amount, the homeowner gets access to an equity line of credit they can access over a draw period which can last over a decade.

Equity lines of credit work similar to credit cards; the credit line is accessed when the individual needs it. Within the draw period, it is common for only interest payments to be made, and after the draw period, the capital starts being repaid as well. 

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Are HELOCs fixed or variable interest?

Another main difference between home equity lines of credit and equity loans is how interest is calculated. A HELOC uses variable rates of interest that can increase and decrease during the draw period and thereafter.