HELOC options & alternatives

Please note: Discover® Home Loans offers home equity loans and mortgage refinance opportunities but does not offer HELOCs.

A home equity line of credit (HELOC) lets you repeatedly borrow against your home equity for a limited time. You should understand how this type of financing works, especially when it comes to interest rates and draw and repayment periods. 

Checking your HELOC options

If you’re deciding whether to apply for a HELOC and want to know your options, learn more below:

Fixed vs. Variable HELOC rates

HELOCs typically have variable interest rates, meaning your monthly payments may fluctuate due to market conditions, the economy, and other factors.

Some lenders offer fixed-rate HELOCs, though this is less common. The interest rate on a fixed-rate HELOC stays consistent for the life of the loan.

Comparing different lenders when you’re looking for a loan is important. That way, you may decide what works best for your financial situation.

HELOC draw and repayment periods

A HELOC has two distinct phases: a draw period and a repayment period.

During the draw period, you can repeatedly withdraw funds up to a predetermined credit limit set by your lender. You may have the option to only pay interest on borrowed funds during this time frame. 

After the draw period, you enter a repayment period, where you typically pay both interest and the loan’s principal. This may mean your monthly payments during the draw and repayment periods are different.

READ MORE: Home equity line of credit (HELOC): Requirements, terms, and repayment

Refinancing HELOCs

You may be able to refinance a HELOC to take advantage of a better interest rate, more favorable loan terms, or both. However, you’ll want to consider closing costs and other fees associated with the refinance. 

If your variable-rate HELOC is too difficult to budget for because of fluctuating monthly payments, you may want to refinance it into a fixed-rate home equity loan that offers consistent payments.