HELOC, or home equity line of credit, is a second mortgage that allows you to access funds secured by the value of your equity or home. With the HELOC calculator, it’s easy to know how much you owe and what you can get. Your borrowing is based on your home’s value minus the primary mortgage amount you owe.
What is a Fixed-Rate Heloc?
A fixed-rate HELOC is a home equity line of credit that applies a fixed interest rate on the part of your loan balance or the entire loan amount advanced by the lender and used by the borrower. Like a credit card, you may draw from this line of credit to a pre-approved limit and repay the loaned amount once or in monthly payments.
Borrowing using equity helps you get a low-interest rate because the loan facility is secured. Also, you get only to pay interest on the withdrawn amounts.
How Does HELOC work?
HELOC allows you to borrow against the value of your home, and your house serves as collateral to secure the credit. Once you repay the loan balance, the credit amount available for borrowing gets replenished in a manner akin to a credit card.
This arrangement implies that you can borrow as little or as much as you desire as long as you don’t exceed the pre-approved level each time your available credit gets replenished within the designated draw period.
Types of HELOC – What’s a Fixed Rate HELOC?
A home equity line of credit may be fixed or non-fixed. A non-fixed HELOC has varying interest rates, which may change from time to time. The changing rate is calculated from a fixed credit line margin and a varying index used by banking institutions to set interest rates on loans. The Federal Reserve Prime Rate often serves as the index. Payments on non-fixed HELOC vary based on principal payments, interest fluctuations, and balance.
The fixed-rate HELOC offers a home equity line of credit. The line allows you to put a fixed interest rate on the entire balance or part of the loan’s balance for its entire life. Fixed-rate HELOC is advantageous because it helps shield you from hikes in interest rates. Additionally, payments made on the part of the balance calculated using a fixed rate are stable and predictable enough to help you plan your loan repayments.
How do you access a fixed-rate HELOC facility?
Applying for a fixed-rate HELOC facility is simple, but you must first meet the following basic requirements.
- Your home equity ownership should be between 15% – 80% for you to access HELOC.
- Different lenders offer varying interest rates, and you can use the HELOC calculator to compare the available options to get the best HELOC rates.
- Once you’ve chosen an ideal lender and rate, you should collect and present information and evidence to show your chosen HELOC lender that you have a debt-to-income (DTI) ratio of at least 45%
- Check the prime rate used by your prospective lender to determine how much you’ll pay before you can fill out the paperwork.
- If you’re satisfied with your assessment, then complete the agreement to access the credit facility.
How do you calculate your fixed-rate HELOC interest?
Here is the step-by-step procedure to calculate your HELOC interest:
- Determine your HELOC balance or the amount of credit you’ve accessed at present
- Multiply the annual interest charged on the credit facility by your present HELOC balance
- Finally, divide the acquired figure by 12 to get the amount of payment you’ll make per month
Calculating HELOC payments, interest, and other variables may be challenging for new learners. Still, your task may be easy if you use a HELOC calculator tool. A HELOC calculator is designed to factor all critical variables into your calculations to give you quick and accurate results on all HELOC-related variables.
How do you calculate HELOC interest?
Calculating the interest on your HELOC helps you know how much you’re paying as interest for the amount you used out of the total loan facility extended to you. Your interest will depend on the lender’s interest rate percentage and the amount of funds you received or used out of the total extended.
For instance, if you got a $200,000 pre-approved credit line limit at an interest rate of 10% and only used $100,000. The lender will only charge interest on the used credit of $100,000, and the interest will be – $100,000 * 10% = $10,000.
A fixed-rate HELOC shields you from rising and unstable market interest rates and provides a stable payment model that is predictable and good for budgeting your monthly payments.
You’re good to go if your equity ownership stands between 15% – 80% of your home. Still bothered by questions such as “what is a fixed-rate HELOC?” Or “how do you calculate fixed-rate HELOC interest? Well, worry no more! Numerous online platforms provide a HELOC calculator to get you started.