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Fixed or Variable Rate? Determining Your HELOC Repayment Schedule

Posted On: 09/10/2024

A Home Equity Line of Credit, or HELOC, is a financing option for homeowners based on the current value of their home. This revolving line of credit is typically utilized by borrowers to make major purchases, from home improvements and college tuition to debt consolidation, medical bills, and more.

With offices throughout the Finger Lakes Region and Western New York, Generations Bank offers HELOCs that come with a 10-year draw period and a 15-year repayment period. In terms of interest, our HELOCs give borrowers the ability to choose from a fixed or variable rate Home Equity Line of Credit.

Variable vs. Fixed Rates

A traditional HELOC typically will have a Variable Rate of Interest, which means the interest is based on a lender’s benchmark rate. For example, this benchmark rate could be calculated from the Wall Street Journal Prime Rate Offer, with an additional percent to a set margin. Variable rates are subject to change, which could mean a lower or higher payment at any given time.

A Fixed Rate of Interest enables borrowers to lock in a specific rate for a selected term of the product offering.

Understanding a HELOC Repayment Schedule

During the draw period for a HELOC, borrowers have the flexibility to utilize the line throughout the 10 year period, similar to utilizing a credit card. They can borrow an amount up to their credit line’s limit, repay the balance, or pay down on the balance and start the borrowing cycle again as many times as needed. When the draw period closes, the repayment period begins, and additional funds cannot be borrowed. In each month of the repayment period, borrowers owe payments on both the principal amount and interest. Combined, the draw and repayment periods total 25 years.

If you’re thinking about a HELOC, it’s not only important to understand its draw period parameters and repayment schedule requirements, but you also must weigh your options when it comes to choosing a Fixed or Variable Interest Rate. To help you in your decision, ask yourself questions like:

  • Can I afford a change in monthly payments if I opt for a variable interest rate?
  • Would I benefit from the stability of fixed-rate loan payments?
  • Is the current financial environment seeing rising or dropping rates?

Get Assistance to Make the Right Choice

At Generations Bank, we understand that applying for a HELOC can be a confusing process. That’s why our experienced team is ready to provide you with the lending assistance you need. Offering attractive home equity loc rates, we’ll help you decide whether fixed or variable interest is best for your financial situation and goals. Learn more about HELOCs in the Finger Lakes Region and Western New York by contacting Generations Bank today.