On Wednesday, the Federal Reserve raised short term interest rates once again, bringing the total increase to around 1% in just the past 15 months.
Federal Reserve officials have also indicated possibly three more interest rate increases for the rest of 2018 and three more in 2019. Short term interest rate hikes can have direct impacts on most Home Equity Lines of Credit (HELOC’s), adjustable rate mortgages, car loans, personal loans, and even credit cards. When short term interest rates rise, the index that most HELOC’s are tied to will rise, increasing your borrowing costs.
Reed Myers, principal of Myers Capital Hawaii explains, “When short term interest rates rise on a HELOC, and your teaser rate period has expired, your monthly payment will likely increase as early as your next billing cycle. If you happen to still be in your teaser rate period (typically 1-3 years), you will still be affected, but it can be an even more dramatic payment increase at a future date. This is sometimes referred to as payment shock. There is always the chance, that interest rates don’t continue to increase, but it ends up being a kick the can down the road scenario, depending on how the rate environment plays out. For most homeowners, unless they have the fortunate ability to pay off their HELOC’s before a major adjustment, its typically a gamble that does not payoff. Most HELOC’s adjusting out of the teaser rate period today are increasing to 4.5- 5.5% with no cap up until 18% or 19%.”
In this volatile rate environment, prudent and well-prepared homeowners are already seeing the benefits to locking in a fixed rate now. Myers goes on to comment, “The interesting thing about this rate environment is that although short term rates have seen a steady rise in the past few years, long term mortgage rates have not increased with the same aggressiveness. This creates an opportunity to lock in long-term fixed rates, on large balance HELOC’s that would typically be adjusting every time the Fed raises rates. If you can take advantage of this opportunity, it’s a great position to be in as a borrower.”
Operating out of the Davies Paciﬁc Center on Bishop Street in downtown Honolulu, Myers and his team will work with you one-on-one to develop a strategy to reduce interest rate risk and reach your real estate goals.