Many home owners prefer to choose a fixed rate HELOC when they buy their second home. One of the benefits of doing so is the way in which your monthly payments are predictable. While payments do fluctuate due to the market and the total amount of the HELOC borrowed, it is still peace of mind for many home owners.
A fixed rate HELOC also assures property owners that they will never have to deal with interest hikes. This is especially important in times like these with the current credit crisis. Interest rates have been very volatile in recent months, but with a fixed rate home equity line of credit this will not happen.
Opposed to an adjustable rate line of credit, fixed rate HELOCs do not bounce all over the place with possible daily changes.However, you need to shop around to find the best HELOC rate as there are a wide amount of choices available from loan providers.
So if you borrow a large sum of money on your home loan, this could negatively affect you.
But despite all the glorious goodness of fixed rate HELOCs, there are disadvantages too
Fixed Rate HELOC negatives
While a fixed rate HELOC offers the borrower stability and predictability, some potential drawbacks are possible reductions in interest rates. If your rate has been fixed for the term of your HELOC loan, you will actually lose money if interest rates go down below what you pay with your HELOC.
This can of course be seen both ways as sometimes even a loss will still outweigh the overall gain and only you can determine what is best for your situation.
You also have the option to change your rates, but this can involve hefty penalties and make it often not worth to change your fixed rate HELOC, even if interest rates go down.