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Managing Your Home Equity Line of Credit

Most home equity lines of credit (HELOC) have a variable interest rate that’s tied to the Prime Rate. When the Fed raises the Federal Funds Rate, the Prime Rate increases and could increase the annual percentage rate (APR) and monthly payment on your HELOC. How much impact rising rates have on your situation depends on your current balance and how your HELOC is structured.

Some HELOCs – like the ones Wells Fargo offers – have features that give homeowners more control over their interest rate and monthly payments. Check to see if your HELOC offers these features:

Fixed-rate advance or fixed-rate option

Some HELOCs include the option to convert all or a portion of your balance into a fixed-rate advance during the draw period. The APR and monthly payment will be fixed during the term of the fixed-rate advance. Any unpaid balance at the end of the fixed-rate advance term will revert back to the current variable interest rate. Here’s how it works:

Let’s say you have a $60,000 line of credit, and you take a fixed-rate advance of $35,000 to pay for a kitchen remodel.

  • The APR and monthly payment on the $35,000 advance is fixed throughout the term you choose — even if the variable rate rises.
  • You’ll still have access to the unused portion of your line of credit to cover other expenses.
  • As you pay down the fixed-rate advance, your funds become available again.

Annual and lifetime rate caps

For some Wells Fargo HELOCs, the variable rate on the line of credit will never increase more than 2% per year based on the anniversary date of the signed line of credit agreement. In addition, on some accounts, the rate will also never be more than 7% higher than where you started.

 Tip 

Wells Fargo’s new home equity line of credit offers a fixed-rate advance option along with interest rate caps, and principal-plus-interest payments to help rebuild your home equity.

Next Step:
Learn how a draw period and repayment periods on a home equity line of credit (HELOC) work.