Six HELOC Strategies for a Rising Interest Rate Market

Six HELOC Strategies for a Rising Interest Rate Market
I found this nice article from smashits website and thought would be a good post. From Author Tim Paul...

Most home equity line of credit (HELOC) loans are indexed to the bank prime loan rate. This means that when the prime rate changes, the rate on your HELOC loan will change too, typically within a few weeks time.

When prime increases 100 basis points (one full percent) the typical home equity line of credit borrower with a $30,000 balance, pays an additional $300 in yearly interest costs. If you make monthly payments according to a fixed schedule, the rise in rates also means less of each payment dollar goes towards reducing principal. In other words, it will take longer to pay off the loan balance. Interest rates seem likely to continue rising (at least in the short run), so it is worthwhile to look at some strategies available to HELOC borrowers to help control the damage to their wallet:

1. 0% Balance Transfer Offers - If you have good credit and are attentive to details, transferring some or all of your HELOC debt to a 0% credit card can be a viable strategy. You can ride the 0% offer until it expires knowing that you can always payoff the balance with a HELOC check (effectively transferring the balance back to the HELOC). A few downsides of this strategy are:

a) minimum monthly payments will be 2% - 3% of the balance which may be higher than the minimum payment for an interest-only HELOC;
b) you must be on top of all the details related to the 0% offer. For example, Discover offers a "0% for life" balance transfer, but you must be certain to make a minimum number of purchases each billing cycle to keep the 0% rate. Trip up and your rate can immediately skyrocket to double-digits; and,
c) most offers have a balance transfer fee associated with them. Typically, the fee is 3% - 5% of the transferred balance with a maximum (e.g. $50.00). Be sure you know exactly what the transfer fee is and that the interest savings you expect to realize will easily offset it. It is worthwhile calling the credit card company to discuss their balance transfer fee. Account reps often have discretion to waive the fee if they think doing so will close the deal.

There's no free lunch with this strategy, but if you are willing to put in the effort, you can realize significant interest savings.

2. You can also refinance or roll your HELOC into a fixed rate home equity loan or your first mortage . This will protect you from further rate increases - but can backfire if rates fall again. In the current market, longer-term fixed rate loans have not risen in step with increases in the prime rate. This makes this an attractive option for some.

A key factor if you are considering this move is to carefully analyze the up front closing costs of the refinancing transaction and determine whether you will remain in the home long enough to recoup these costs through interest savings.

3. Perhaps the simplest, most effective strategy is to inventory your cash assets and pay down the debt. If you have cash sitting in CD's, money market accounts or other investments earning less than the rate on your HELOC, consider using that cash to pay down the interest-accruing balance on your HELOC. You can still get the funds out in an emergency by simply writing a HELOC check.

Be sure you consider the effective after tax rate on your HELOC when comparing rates.

4. Review the terms of your HELOC with your banker. Things you should be familiar with include the specific index and margin used (e.g. prime rate -.25%), frequency of rate changes - monthly, quarterly, etc. (less frequent is better when rates are rising), and the lifetime cap on your rate.

If you have had the same HELOC for several years, you might find you a have a relatively low cap. Some HELOCs originated 4-5 years ago have lifetime caps as low as 7%. Also, find out if your HELOC permits a conversion to a fixed rate home equity loan with little or no closing costs.

5. Ask your lender if there are any rate discounts available. For example, some credit unions offer to discount your rate by a quarter percent (0.25%) if you have monthly payments automatically deducted from a checking account. Other discounts may be available if you have a significant service relationship (e.g. checking, savings, CD, business accounts, etc.) with the bank.

6. Look for a better HELOC deal. The market remains very competitive with many lenders offering sub prime rates with low or zero closing costs. Shop the internet and shop your local lenders to find the best HELOC deal. And don't be shy about letting your current lender know that you are shopping - if you have a banking relationship they value, you may find them very willing to give you special consideration.

Rising interest rates are a cyclical fact of financial life. The good news is that even with recent increases, HELOC rates are still at historically low levels. Furthermore, the tax-deductibility of interest keeps the HELOC loan the most cost-effective method of borrowing for the savvy consumer.

Secured Debt Consolidation Loans: your All-in-one Solution!

Secured Debt Consolidation Loans: your All-in-one Solution!
Debt consolidation is something we all need today. Debt is something everybody faces today. It’s no longer that taboo topic we all thought impossible. Pending bills, gas, store and credit card dues, outstanding house and car loans, etc. are financial responsibilities we all come across in everyday situations. But when all such expenses pile up, they can get quite out of control, making your financial state of affairs unmanageable. This is where Secured Debt Consolidation comes in to solve your problem.

Debt Consolidation Loans are all-in-one solutions. These are loans that help pay off your consolidated debt. When you approach an agency for Debt Consolidation Loans, they instantly talk of consolidation—a process in which all your existing dues are accumulated and merged into one single outstanding amount. The Consolidation Loan that the agency approves is then used to repay the entire pending amount in one lump sum. All you now need to do is repay the single consolidation loan to the consolidation agency.

The process is very simplified and easy to comprehend, but it goes through the entire rigmarole no doubt—collateral, security, verification, valuation, approval, etc. Debt Consolidation Loans are either secured or unsecured. Both have their benefits and drawbacks and cater to distinct category of individuals.

Secured Debt Consolidation works in the same way that Consolidation Loans are supposed to work. The only difference being the requirement of collateral. Secure Debt Consolidation Loan require takers to place collateral of a certain value as security to guarantee repayment of the consolidation loan. Collateral is usually offered in the form of your home, automobile, etc. For those of you who do not have collateral to pledge or do not want to risk it, there are unsecured debt consolidation loans for you.

With Secured Debt Consolidation Loans, an individual must first produce details of all his/her outstanding debt. This debt is then consolidated into a single unpaid amount. This amount is repaid with the Secured Debt Consolidation Loan. I am sure you're wondering how this works…

Instead of paying monthly instalments to all your individual lenders, store owners, credit card companies, etc., you now make a single pay check to the consolidation agency. They in turn make your individual repayments for you. You are instantly saved all the running around, you can avoid those harassing reminder calls, collection visits, etc.

The interest rates for Secured Debt Consolidation Loans are relatively lower than their unsecured counterparts. The secured versions also have longer repayment terms and flexible repayment options, making your loan experience much more enjoyable and easy. All you have to do is find the right lender who can offer you a Secured Debt Consolidation Loans tailored to your financial need.