real estate

How to Sidestep Rising Rates on Your Home-Equity Loan

You may be able to rein in your loan payments before they go up.

Rising interest rates have boosted the cost of borrowing against your home, and rates are likely to go higher. The average rate on a home-equity line of credit (HELOC) recently was 5.77%, a percentage point higher than when the Federal Reserve started raising rates in December 2015. With at least two more rate hikes expected in 2018, the average HELOC rate could hit 6.5% by year-end.

During the initial draw period, usually 10 years, your lender may allow you to avoid future rate hikes by locking in the current rate on all or a portion of your outstanding balance. For example, Wells Fargo allows its HELOC borrowers to convert a minimum of $10,000 to a fixed rate twice a year. If your budget allows, choose a fully amortizing payment that won't leave a balance at the end of the repayment period to which a higher, variable rate would apply.

Another option for homeowners who don't have a supercheap mortgage: Roll your mortgage and home-equity debt into a single mortgage. If you used the home-equity debt to buy, build or improve your home, you'll qualify for a lower rate than you'd get if you refinanced your first mortgage for more than the current balance and took the difference as cash, says Josh Moffitt, president of Silverton Mortgage, in Atlanta.

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