Most important question to ask before you sign on to that low interest Home Equity credit line you think is a steal…..
What tools do you (Bank or Lender) have to fight rising variable interest rates?
And please write it down on the application form or the Note they give you. Better yet, enter it in the notes section of your lender or bank contact info on your phone.
And please, please don’t tell yourself your banker or lender is looking out for you so he or she will remind you when the time comes. No!!! They work and look out for the bank or lender interest, first, to make money for them not you. You are secondary. That is a FACT!
It turns out that some banks have tools like Fixed-Rate Lock option which allows borrowers to lock variable rate to fixed rate immediately you notice Feds going to increase rates long term. The pudding on this tool is you can revert to variable if Oldman Fed starts cutting rates again for a small fee which I strongly suggest you negotiate.
There is no question variable rate is a better option for your Home Equity credit line but the negative volatility is hidden way down there and sooner than later it’s going to creep up and you need to be prepared for it.
Otherwise guess who will be laughing all the way to the vault, your banker or lender. Thing is, tools like Fixed-Rate lock is your protection for recklessness and greed on Wall Street rogue trading and FOMC (Federal Open Market Committee) margin disagreements. These bigwigs could never agree on right margins..Hence interest volatility like indices and taxes.
This tool allows you to transfer a portion or all of your current balance from the variable interest rate part of the line to a fixed interest rate with a set repayment term that you choose at any time during the Draw period. That is why it is called a “Fixed Rate Lock” or sometimes a “Fixed Rate Part.”
This gives you the flexibility of having a variable rate and payment, with the option to transfer the balance to a consistent fixed rate and payment, whichever is best for
you. Be sure to ask Lender for Home Equity Credit Lines that has Fixed Rate Lock option because there are several brands of HELOC that some banks offer. To Banks or lenders, it is a “Don’t Tell Be Asked First” approach. So make sure you ASK them.
Fixed Rate Lock balances can be unlocked at any point during draw period by walking into a branch or call Customer Care Center. Most accounts pay a fee of $100 each time a Fixed Rate Lock balance is transferred back to the variable rate line. Negotiate on fees.
Some Fixed Rate Lock requires a minimum balance of at least $5,000.00 on the variable rate line. Enquire from your lender the minimum requirements. Also, maximum entire outstanding balance from the variable rate part of the line can be transfer to fixed. Straight up, you cannot have a Fixed Rate Lock greater than your current outstanding balance. If you able to do that, drop me a note on which bank or lender dumb enough to allow that and will be next in line.
Most Fixed rate Locks are processed in 2-3 business days which can be applied online or at a branch. Remember once details of the Fixed Rate Lock are finalized you cannot transfer future advances from the variable part of the line to this particular Fixed Rate Lock but you have the option to create another Fixed Rate Lock. Negotiate on this limitation with Bank or Lender for they want your business.
As with any financial product, it’s important to use FeeBelly to quickly read and understand all the terms and conditions of a HELOC. There are predatory lenders out there who may charge high upfront fees, annual fees or prepayment penalties and give you free restaurant coupons to entice you to sign up. Some of these junk fees and disastrous terms may be buried in long blocks of text. It will be tedious reading it yourself so let FeeBelly do that for you before you sign on the dotted line. Knowing precisely what you’re agreeing to will help you make an informed decision and protect you from negative consequences you weren’t expecting.
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