A home equity line of credit (HELOC) is a line of credit that uses the equity you have in your home as collateral.  The amount of credit available to you is dependent on the equity in your home, your credit score, and your debt-to-income (DTI) ratio.  Because HELOCs are secured by an asset, they tend to have higher credit limits, and much better interest rates than credit cards or personal loans.  While HELOCs usually have variable interest rates, there are some fixed-rate options available.  (The fixed-rate option comes in when you can convert all or some of the money you borrowed on the HELOC to a fixed interest rate, and terms vary by lender.)

Take a look at your current loan and financial situation, as well as your financial goals, when considering a cash-out refinance.  If you have a high interest rate on your current loan you might want to consider a cash-out refinance.  You may also want to look into a cash-out refinance if your home has gained significant equity and you want to eliminate mortgage insurance payments.  If you currently have a low interest rate and no mortgage insurance payments, you may want to consider a Home Equity Loan, since it does not impact your current loan terms.

Traditionally, if you wanted to borrow against the equity in your home, you could either get a fixed-rate home equity loan or draw money against a HELOC—a closed-end line of credit with a variable interest rate. Now, there’s a third choice: a HELOC with a fixed-rate option.

When you can’t decide whether a home equity loan or HELOC is the best option for you, a HELOC that lets you lock in part of your balance at a fixed rate is a great alternative. It doesn’t force you to choose between borrowing a large sum now and having the flexibility to withdraw funds as you need them later. It also doesn’t make you choose between knowing your interest rate and taking a chance on market rates.