No. In fact, banks
make more money when interest rates are low. High Federal Reserve interest
rates will leave lower margins (i.e. rate of return on investment) for a bank
because a 10% interest rate will only allow a bank to charge an extra 1% above that rate – and yet still few people will be willing to pay that much! Whereas a 3% interest rate can have a
2% additional margin added by the bank and droves of people will still apply for
those loans. Every time the rate moves up, people are pushed out of the marketplace. From a qualifying perspective, the goal is to bring as many people in and generate new loans. And banks know as rates rise, if they kept the same margins then they would lose a lot of business due to more people being disqualified from harder stress tests and higher debt-to-income ratios. Therefore, the banks do not want high interest rates – they want low rates with high margins!
As the Federal Reserve resuscitates the economy from any financial downturn, the banks rates often rise up alongside and therefore they offer more promotional rates for new and existing customers with good credit and good equity in their home. The banks will either offer smaller loans (due to a higher qualifying limit) or they give a promotional rate (but only to HELOCs). Mortgages will rarely see a promotional rate in a high interest rate environment because these are government backed loans traded on a secondary market - so there is no room to offer prime rate minus a percentage as a promo rate.
In
fact, banks love HELOCs because during the 2008 recession they saw the statistics that said "HELOCs have a 125x lower default rate than mortgages!" Why? Because HELOC homeowners were able to turn their equity into a reverse
mortgage, instantly, without paying outrageous fees associated with a reverse mortgage (e.g. $15K charge for every $100K borrowed against). That is why investment
firms are now seeking banks that obtain HELOCs on their books, and even
rewarding them for doing so!