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Fixed vs. Variable: Choosing the Right Personal Loan Rates
What’s the difference between fixed rate loans and variable rate loans and which options is better? Below is a resource to help you understand and choose between fixed and variable rate loans.
Watch the video explanation of Fixed vs Variable rates
If you’re shopping around for a personal loan, you may hear about fixed rate and variable rate loans. Both terms refer to the loan interest rate, and either can be a smart choice, depending on your situation.
Here’s a closer look at the differences between fixed rate and variable rate personal loans and how to determine which option is right for you.
Key Points
• Fixed rate loans provide consistent monthly payments and total interest, but they may start with higher rates and lack flexibility.
• Variable rate loans fluctuate with market rates, potentially offering lower costs but higher risk.
• Fixed rates are ideal for long-term loans and those seeking payment predictability.
• Variable rates suit those with financial flexibility and short-term loan plans.
• Loan choice depends on personal financial situation and risk tolerance.
What Is a Good Interest Rate on a Personal Loan?
APRs for a personal loan range between 8% and 36%, though the rate you’re offered will depend heavily on the loan amount, repayment term, and your credit profile. Generally speaking, the higher your credit score, the lower your rate will be. To find the lowest rate and best terms, shop around and compare rates among different lenders.
Fixed vs. Variable Loan Rates
Deciding whether to go with a personal loan with a fixed or variable rate generally boils down to two factors: the predictability of your payments and potentially lower costs.
Fixed Interest Rate
Fixed-rate is a general term that can apply to different types of loans with a variety of uses, including student loans, mortgages, auto loans, and unsecured personal loans.
Fixed rate loans have an interest rate that does not change over the life of a loan, which means you pay the same amount each month. It also means you know with certainty the total interest that you’ll pay over the life of the loan.
However, there are potential drawbacks to consider. Fixed rates may be higher than variable rates at the start of your loan term, and these loans aren’t as flexible. You may be charged an application or origination fee, and you could get hit with fees or penalties if you pay off the loan early. Plus, if interest rates drop, you won’t be able to benefit because your rate is locked in.
Variable Interest Rate
Variable rate loans have an interest rate that will fluctuate over time in line with prevailing interest rates.
Variable rates are usually pegged to changes to a well-known index, such as the 1-month LIBOR. LIBOR (the London Interbank Offered Rate) is the interest rate that banks charge one another to borrow money; the 1-month means that the variable rate can change monthly. A rate change one month also changes the monthly payment due for that month, as well as the total expected interest owed over the life of the loan.
However, some variable rate loans come with a cap that sets a limit on the interest rate that you can be charged, regardless of how much the index interest rate changes.
On the plus side, you could potentially pay less interest over time than you would with a fixed-rate loan. And your lender may allow you to switch to a fixed-rate loan at any time during the loan term.
But if interest rates rise, you could end up paying more than you would have with a fixed-rate loan.
💡 Quick Tip: Refinancing comes with a lot of specific terms. If you want a quick refresher, the Student Loan Refinancing Glossary can help you understand the essentials.
Which Type of Loan Rate Should I Choose?
If you like the consistency of knowing exactly what your monthly payments will be over time, you might prefer a fixed rate loan. Also, if you plan to pay your loan back over a longer period of time, say 10 or 20 years, you might prefer to eliminate the risk of interest rate changes over time by selecting a fixed rate loan.
In contrast, you might prefer a variable rate if you want to take advantage of the maximum possible savings but have the financial flexibility to make higher monthly payments and total interest should interest rates rise. You might also prefer variable rate loans because you plan to pay off your loan in a short time frame, such as 10 years or less.
What’s the best option for you? There’s no universal right or wrong answer. The decisions on loan amount, term, and fixed or variable rate all depend upon your personal situation and flexibility.
The Takeaway
With fixed-rate loans, you’re locked into an interest rate for the life of your loan, which means payments are predictable. Interest rates on variable-rate loans depend on prevailing market interest rates, so the total interest owed will depend upon changes in the broader environment.
Ultimately the decisions on the loan term, amount, and loan type depend on your personal situation.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
So, you’ve settled on student loan refinancing. You’ve filled out the application, have gotten approved (congrats!), and now you’re faced with a couple of loan options… More
As companies and global economies continue to face a range of climate-related and societal changes, a growing number of investors are exploring ways to invest in organizations that support positive environmental and social outcomes.
Sustainable investing is an approach that takes environmental, social, and governance (ESG) factors into account, as well as financial ones. While investors often choose these investments because they align with their values, many also recognize that sustainable investing strategies today can be as profitable as conventional ones — and may help sow the seeds for sustainable growth in the future.
If you’re considering sustainable investing options, the resources below may help provide a clearer understanding of this expanding sector.
Sustainable Investing Fundamentals
To learn more about socially responsible, green, and impact investing strategies, take some time to explore the basic principles of sustainable investing.
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SoFi’s newsletters and podcasts can help you stay up to date on the latest in sustainable investing, the financial markets, and more.
Wondering what kinds of sustainable investments might suit your portfolio and priorities?
These days there are many sectors and types of assets to consider.
Supporting Standards of Corporate Governance
Shareholders can play a critical role in helping to ensure that companies are well run, and meet certain ethical and reporting standards. Understanding the roles and responsibilities shareholders can have is also a part of sustainable investing.
Start trading online with SoFi
Ready to start investing with a sustainability focus? SoFi Invest® can help. With a SoFi online brokerage account, you can trade stocks and exchange-traded funds (ETFs) with no commission for as little as $5.
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Comments Off on Resolution 2025: Prioritize Saving
Today we’ll ask you once more to take a step back from all the noise and consider how you feel about your finances. It’s a complex question, so we’ve broken it down, offering a framework for thinking about three main areas — spending, debt, and in this article, investing for your future. We hope it will inspire you to start 2025 with new resolve, or simply with fresh gratitude that you’re on the right track.
Let’s face it, saving for the future isn’t that easy. Maybe you don’t prioritize it over more immediate needs. Or it can’t be a priority, given your current job status, family situation, or extenuating circumstance.
Perhaps it seems futile, considering how much you’ll need in the end. Or you’ve simply put it off. Or, you want to start that 401(k), but you’re daunted by the prospect of losing money in an unpredictable stock market. Better still, you are saving, but it’s taking a lot of self-control.
No matter the circumstance, it can be challenging to build up the savings you’re going to need for retirement, your kids’ college education, or an unexpected emergency. So here’s some math to keep in mind and to motivate you.
First, the earlier you get started, the better. And not only because you’ll have more time to invest, but because the longer you’re in the market, the more compound returns can work in your favor.
Making regular contributions through your employer’s 401(k) plan or to an individual retirement account (IRA) demonstrates the power we’re talking about. As this chart shows, starting at age 20 rather than 35 could mean hundreds of thousands of additional dollars by age 65 — even if the 20-year-old contributes half as much each month.
Second, the U.S. stock market tends to appreciate over time. The S&P 500 Index — the broadest measure of the market — has delivered an average return of roughly 10% over the long term (or 6%-7% when adjusted for inflation).
Third, consider this stark divide: The number of 401(k)-created millionaires at Fidelity Investments jumped to a new record high of 544,000 in the third quarter — an increase of nearly 10%. And yet, one in five Americans 50 and over have no retirement savings, a 2024 AARP survey shows.
So what? Your bills, fears, and countless other priorities can interfere with your long-term financial goals. But the cliches are true: Even a little goes a long way when you use a high-yield savings account, 529 college savings plan, or retirement account. And the longer you’re invested, the more likely you are to earn a return. Like they say, the best day to start investing was yesterday; the second best day is today.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
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• Compare interest rates, fees, and repayment terms from multiple lenders before choosing a HELOC.
• It’s wise to prep your finances before applying for a HELOC: Check that your credit score, DTI ratio, and home equity position meet lenders’ requirements.
• A HELOC allows homeowners with substantial home equity to access funds as they are needed, pay down their balance, and borrow again.
• Alternative ways to get equity out of your home include a home equity loan and a cash-out refinance.
• Researching HELOC rates will help you get the most favorable terms your area has to offer.
Introduction to HELOC Rates
A HELOC is a revolving line of credit that works like a credit card but is secured by your home’s equity. HELOC rates are influenced by factors like economic conditions, the federal funds rate, and a borrower’s financial profile. Understanding these factors can help you navigate the market and get the best available deal on your home equity line of credit.
What Is a HELOC?
What is a home equity line of credit? A HELOC is a revolving line of credit that is similar to a credit card but is secured by your home’s equity. A HELOC isn’t like a traditional loan. It allows you to borrow and repay funds repeatedly during the draw period.
The Draw Period
A home equity line of credit’s draw period typically spans a decade. During that time, homeowners can access funds up to a preapproved credit limit. Interest payments are generally required only on the money withdrawn. Principal payments may be optional. The flexibility of HELOCs make them particularly appealing for addressing large financial obligations.
The repayment period of a HELOC is usually 10 to 20 years. During this period, the borrower pays back both the principal and interest. Using a HELOC repayment calculator will help homeowners plan and prepare, since variable interest rates can fluctuate and impact the overall cost of the loan.
Where Do HELOC Interest Rates Come From?
When you want to get equity out of your home, it’s important to understand a little something about interest rates. HELOC interest rates are tied to the prime rate, Federal Reserve rates, and broader economic factors.
How Interest Rates Impact HELOC Affordability
Interest rates have a significant impact on the affordability of any home loan. A 1% fluctuation in the interest rate can result in a borrower paying thousands of dollars in additional interest over the life of the loan. Here is a look at one example, a $50,000 HELOC repaid over 20 years at three different interest rates:
• At 6.00%: monthly payment $358, total interest paid $35,972
• At 7.00%: monthly payment $388, total interest paid $43,036
• At 8.00%: monthly payment $418, total interest paid $50,373
HELOC Interest Rate Trends
HELOC interest rates closely follow the prime interest rate. Understanding and anticipating potential rate fluctuations can help homeowners make informed decisions regarding when to apply for a HELOC.
Historical Prime Interest Rate
The prime rate’s fluctuations over the years, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023, have directly influenced HELOC rates in Texas.
Date
U.S. Rate
9/19/2024
8.00%
7/27/2023
8.50%
5/4/2023
8.25%
3/23/2023
8.00%
2/2/2023
7.75%
12/15/2022
7.50%
11/3/2022
7.00%
9/22/2022
6.25%
7/28/2022
5.50%
6/16/2022
4.75%
5/5/2022
4.00%
3/17/2022
3.50%
3/16/2020
3.25%
3/4/2020
4.25%
10/31/2019
4.75%
9/19/2019
5.00%
8/1/2019
5.25%
12/20/2018
5.5%
9/27/2018
5.25%
Source: U.S. Federal Reserve
Historical U.S. Prime Rates
Factors Influencing HELOC Rates
In addition to the prime rate, HELOC rates in Texas are significantly influenced by a borrower’s home equity, credit score, income, and loan-to-value (CLTV) ratio. When these factors are optimal, they increase a homeowner’s chance of securing a favorable HELOC rate.
Home Equity
If you have significant equity in your home, you can usually score a favorable interest rate for a home equity line of credit. Homeowners who possess a minimum of 15% equity generally qualify for a HELOC. The higher your equity, the less risk your lender assumes.
Credit Score
To secure the most advantageous interest rates on HELOCs, maintain a credit score of 680 or higher — ideally, 700 or above. A higher score indicates you present lower risk to lenders.
Stable Income
Lenders assess your income to determine your ability to pay back a HELOC. A borrower with a steady income stream is less likely to default, and will almost always get a better interest rate. Be sure to provide documentation of your income when you apply.
Loan-to-Value Ratio
Many lenders require your combined loan-to-value ratio (mortgage balance + desired HELOC amount / appraised home value) to be 85% or less. For example, if your home is worth $500,000, your mortgage balance is $300,000, and your HELOC balance is $100,000, your combined LTV ratio is 80%.
Variable vs Fixed Interest Rates
HELOCs tend to have variable interest rates. That means, your rate may change throughout the life of the loan. Variable interest rates often start lower compared to typical fixed rates, but adjust upward or downward depending on market conditions. Understanding how variable rates work is key to managing a HELOC in Texas.
Tools & Calculators
Financial tools including a HELOC monthly payment calculator, a HELOC interest-only calculator, and a home equity loan calculator can be helpful resources. These widgets will help you to estimate payments and better understand the potential financial implications of a home equity line of credit.
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
How to Qualify for a Competitive HELOC Rate
To obtain the most desirable HELOC rates available in Texas, homeowners should compare multiple lenders. Your credit score and debt-to-income ratio will be key factors when it comes to snagging a highly competitive HELOC offer.
Strengthen to Your Credit Score
Making payments on time and reducing credit card balances can improve your credit score. The higher your credit score, the less risky you appear to lenders.
Assess Your Home Equity
The first thing you need to do when you start a HELOC application is assess your home equity. If you’ve made timely mortgage payments, you’ve built home equity over time. Home renovations also boost the property’s value, and therefore your equity.
Calculate Your Debt-to-Income Ratio (DTI)
Your DTI ratio is important. To calculate, take how much you owe in monthly debt payments (auto loan, student loan, etc.), and divide by your gross monthly income. Home equity lenders often look for a DTI below 36% — the lower your DTI, the better. This ratio is crucial for determining HELOC eligibility.
Application Process for a HELOC in Texas
An application for a HELOC in Texas will require you to submit documents and obtain a home appraisal.
Step 1. Run the Numbers
Assessing your financial situation before you apply is essential. Check your credit scores and calculate your debt-to-income (DTI) ratio, which lenders use to determine your ability to repay the loan. A DTI below 36% will increase your chances of approval. Estimate your home equity to ballpark how much you can borrow. Some lenders offer helpful prequalification tools on their websites.
Step 2. Compare Lenders
See what offers and interest rates you might qualify for. Compare the lenders’ requirements, loan minimums and maximums, fees, and other factors. You’ll also want to note the duration of a lender’s draw, and the repayment periods.
Step 3: Gather Your Documents
Begin putting together all the necessary documents before you plan to apply. Required items are typically proof of income, employment history, credit reports, and documentation of your home’s value. Having these documents ready will speed up the application process.
Step 4: Submit Your Application
Once you have all your documents ready, you can file your HELOC application. This can often be done on the internet, by phone, or in person at the lender’s office. To avoid potential processing delays, make sure all information you provide is accurate.
Step 5: Get an Appraisal
After you submit your application, a lender may request a home appraisal. This is necessary to determine your home’s current market value. If an appraisal shows the value of your home exceeding your mortgage’s outstanding balance, the lender may approve you for a HELOC.
Step 6: Prepare for Closing
Before you’re granted access to funds from your HELOC, your lender will require you to sign loan documents and pay necessary fees. Certain lenders may make funds available within three days after closing. Make sure you understand all terms and conditions.
Tax Benefits and Considerations
HELOC interest qualifies for a tax deduction if the homeowner uses the funds to buy, build, or significantly improve their primary residence. Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly).
Closing Costs and Fees
Good news! HELOC closing costs are lower than home-buying or cash-out refinancing costs. The appraisal fee is the largest expense — it may range from $150 to more than $500. Other costs to know about include application, loan origination, and administrative fees. Lenders may charge annual maintenance, transaction, inactivity, or early termination fees. Or they may waive closing costs, but in that case will usually charge a higher interest rate.
Alternatives to HELOCs
Financing options other than HELOCs include home equity loans, cash-out refinancing, and personal loans. Every option has advantages and considerations.
Home Equity Loan
Unlike HELOCs, home equity loans tend to put a lump sum in your pocket. You pay back different types of home equity loans at a set interest rate. Borrowers can usually access up to 85% of the equity they’ve built through a home equity loan. Here’s an at-a-glance comparison of a HELOC vs home equity loan:
HELOC
Home Equity Loan
Type
Revolving line of credit
Installment loan
Interest Rate
Usually variable-rate
Usually fixed-rate
Repayment
Repay only what you borrow; you may have the option to make interest-only payments during the draw period.
Starts immediately at a set monthly payment
Disbursement
Charge only the amount you need.
Lump sum
Cash-Out Refinance
Homeowners can also tap into home equity via a mortgage refinance. This means applying for a refinancing of your mortgage loan for the purpose of pulling out cash. This option, however, often comes with higher interest rates.
A personal loan is a flexible, typically unsecured loan. You pay it back in regular payments over a set term of two to seven years. Unlike certain home equity loans, personal loans do not require collateral. Evaluate whether a personal loan or a home equity loan better suits your needs.
Credit Cards
A HELOC comes with a lower interest rate than a credit card, making it a cheaper option for carrying large balances, such as for home renovations or debt consolidation.
The Takeaway
HELOCs make it easy to access the equity in your home. Competitive interest rates and flexible repayment options make a home equity line of credit a valuable financial tool. Make sure you understand the terms and conditions, though — especially concerning variable interest rates and the potential impact on your credit score.
SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.
Unlock your home’s value with a home equity line of credit brokered by SoFi.
A $50,000 HELOC’s monthly payment can fluctuate based on the interest rate and its repayment terms. With an 8.00% interest rate and a 10-year term, your monthly payment will be about $607. The same 8.00% interest rate over a 20-year term will cost you $418 per month, although you’ll pay more total interest with the 20-year term.
Is a HELOC a good idea right now?
This depends on your financial situation and needs. HELOC interest rates are better than those on credit cards and can be useful for spendy projects. But it’s important to consider the variable interest rates down the road, as well as the potential impact on your home equity.
What is the monthly payment on a $100,000 HELOC?
You can estimate your monthly payment on $100,000 using a HELOC monthly payment calculator, which crunches your numbers based on the loan amount, interest rate, and repayment period to give you an estimated monthly payment.
For example, if you had a 20-year repayment term and a 6.00% interest rate, your monthly payment would be $716. At a 7.00% interest rate, your payment would jump to $775.
What are the benefits of a HELOC?
HELOCs offer several benefits, including low interest rates compared to credit cards and the flexibility to borrow and repay funds as needed during the draw period. A home equity line of credit can be used for home improvements, debt consolidation, or education expenses. Additionally, the interest paid on a HELOC may be tax-deductible.
Do you need an appraisal for a HELOC?
An appraisal is typically required for HELOCs to determine the value of your home and the amount of equity available.
What disqualifies you from getting a home equity loan?
Several factors can disqualify you from getting a home equity loan, including a low credit score, high debt-to-income ratio, insufficient home equity, or a history of late payments.
How difficult is it to get a HELOC?
It depends on your financial situation and the lender’s requirements. HELOCs typically require a good credit score, sufficient home equity, and a stable income. The application process involves providing thorough documentation and undergoing a home appraisal. Comparing lenders and understanding their qualification requirements can help you weigh the ease or difficulty of obtaining a home equity line of credit.
Does HELOC affect credit score?
It can, in several ways. Applying for a HELOC may result in a hard inquiry, which can temporarily lower your score. Also, high utilization of your credit line can negatively impact your score. But making timely payments on your HELOC can improve your score over time.
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²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945. All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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