Will The Banks Offer Promotional Rates or Advertise HELOCs In A Down-Turned Economy
The banks are begin to flood the markets with advertising for HELOCs and offering promotional interest rates below prime rate for two reasons. One, they need new customers / loans to originate. Two, a HELOC is a private loan (not federally regulated) and therefore it sits on the bank's personal balance sheet as an asset. They DO NOT want to sell this off on the secondary markets like they do with government backed securities like a mortgage. Therefore, the bank can offer rates well below prime rate because federal regulations do not require them to lend the money at a specific interest rate. This lets the bank still make healthy profits at 5% APR while the prime rate sits at 10% APR.
To add more details to this idea, if a bank customer has a mortgage and interest rates go up 2% to 3% in a year, it will affect their debt-to-income ratio and potentially lead to a default. Banks do not want defaults on their books, so they monitor their balance sheets often for this issue. In other words, if a $100K HELOC that began with at 3% interest rate has risen to 7% - the lender knows this requires an intervention on the client's behalf. So they offer promotional rates to existing customers to lower these payments and prevent future defaults. After each recession or economic downturn, the banks offer insane promo rates to existing customers that have HELOCs.
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