Market Presents New Challenge: HELOC or Refinance?

Dusty Broderick

With home values at all-time highs and first mortgage rates lower than the current market, many of you are inquiring with us about a home equity line of credit (HELOC) to fund those long-desired remodels, looming college expenses, or down payments for other properties.

We can fully appreciate the desire to keep that incredibly low-rate first mortgage, especially as HELOC’s have been such excellent low-rate tools the past few years. Their biggest drawback – the variable rate – has been entirely kept in check by the Federal Reserve’s unprecedented monetary policy, making them incredibly enticing still.

However, .25% rate hikes by the Federal Reserve in both December and March have increased the base rate on HELOC’s to the key 4.0% threshold, with two more .25% rate hikes now expected before year end. Worse yet, a quick review of the Fed “dot plot” – which indicates the Federal Reserve’s plans for future rate hikes – puts the prime rate for HELOC’s on pace for 6.0% by the end of 2018!

So what does that mean for you?  Simple: if you are considering a HELOC, let’s be sure to fully vet all of your options. Refinancing that low first mortgage at today’s still historically low rates could very well be your best long term option.

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