On Wednesday, December 14th, Janet Yellen, Chairwoman of the Federal Reserve announced the raising of the benchmark short term interest rate by another .25%. This brings the total increase of .5% in one years’ time with more expected for 2017. The raising of this benchmark can directly affect Home Equity Lines of Credit(HELOCS), auto loans, credit cards and even student loans.
For homeowners exploring a HELOC, this should be another warning sound. HELOCS typically have an introductory teaser rate period which can be very enticing. However, once your teaser rate period has expired, your rate and payment will most certainly increase, and this latest decision by the Feds will only exaggerate that effect. Unless you have the ability to pay off the funds you have used in a couple of years, you could be setting yourself up for a very unfavorable position. Today, most HELOCS out of their teaser period will have rates of 4.75%-5% or more, with typically no ceiling until 18%-19%.
You wouldn’t (or shouldn’t) max out your credit cards for large renovations. Using a HELOC is similar to using a large credit card. It can leave you with large amounts of debt and unplanned payments that will increase as interest rates continue to rise.
At Myers Capital we provide our clients real estate financing solutions that match their short and long-term goals. We take the time to educate our clients about all the options and strategies available so that they may make better decisions now and into the future. Whether you’re planning to use your equity to renovate, consolidate debt, or even acquire new property, obtaining a fixed rate home equity loan can make your financial future substantially more secure.