What If Interest Rates Increase

What If Interest Rates Increase

There are fixed, hybrid and variable rate HELOCs. Variable interest rates mean the percentage will rise or fall depending on the monetary policy of the Federal Reserve. With our strategy, one's HELOC will become interest-rate immune - essentially paying off the loan faster than the interest can increase the outstanding balance.

A 30-year mortgage at a 5% interest rate has one pay $193K for every $100K borrowed. A HELOC at a 10% interest rate, only has one paying $130K for every $100K borrowed when the loan is repaid in 5 years like we show in the program. A HELOC with an interest rate 2X higher than a mortgage saves $63K for every $100K borrowed!

NOTE: Only if one is not cashflow positive could an increase in interest rates affect the HELOC negatively. In short, we'd much rather have a 10% HELOC over a 5% mortgage!

    • Related Articles

    • Doesn't A HELOC Have Variable Rates

      The majority of HELOCs are variable interest; however, the option exists for fixed or hybrid as well. Some banks offer a low fixed rate for 5-10 years, which is all the time most students need to pay off their home. A hybrid HELOC allows one to lock ...

    • Why Did The APR Change on The HELOC

      The APR on a HELOC is often tied to an index (e.g. Prime Rate). When these rates change, so does the HELOC's APR.

    • How Is The Annual Percentage Rate on The HELOC Determined

      The HELOC APR is typically a variable interest rate and can change as often as monthly based on the index rates (e.g. Prime Rate). Some APRs may be a fixed rate determined at the time the feature is set up.

    • How Often Does The APR Change For The HELOC

      It could change as often as monthly depending on the changes to the United States Prime Rate. These changes in APR are always effective on the first day of the monthly statement period and remains effective for the entire statement period.

    • Don't Banks Want Interest Rates To Go Sky High

      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 ...