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How often do HELOC rates change?
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Thanks to a sustained period of high interest rates, borrowing cash has been expensive in recent years. Credit cards have average rates near record highs currently, and personal loan rates are above 12% on average.
Fortunately, homeowners have access to slightly lower-cost options with home equity loans and home equity lines of credit (HELOCs). These borrowing options allow you to tap into your home equity at an average rate of 8 to 9%.
But while home equity loans and HELOCs can be an affordable option to consider in today’s high-rate environment, there are risks to contend with. HELOCs, for instance, have variable rates that can change regularly, making it hard to estimate payments and plan for the costs. If you’re considering taking out a HELOC to tap your home equity, here’s what to know about their changing interest rates.
Start comparing your top home equity borrowing options online now.
How often do HELOC rates change?
It might be surprising, but HELOC rates — in the general sense — change “daily,” says John Aguirre, a mortgage broker at Loantown.
This goes for all mortgage rates, to be fair. Interest rates on these products are always in flux, changing based on investor activity, perceived moves from the Federal Reserve, demand from consumers and more.
This is why you’ll often hear the term “rate lock” thrown around. A rate lock lets you lock in your quoted interest rate while you wait for your loan to go through underwriting and head to the closing table. Essentially, it protects you from potential rate increases as your loan moves through the system.
Ready to borrow from your home’s equity? Find out what your top loan options are here.
Your HELOC rate changes less often
Most HELOCs have variable interest rates, meaning your interest rate will adjust many times over the course of your term. Fortunately, while market HELOC rates change daily, your specific interest rate will only change monthly.
Exactly how much it will change depends on the caps outlined in your HELOC’s terms.
“The caps will tell you how much the rate can change at your first adjustment, how much the rate can change at subsequent adjustments, and the maximum amount the rate can go up over the life of the loan,” Aguirre says.
That last one is your “worst-case scenario” rate, according to Aguirre.
HELOCs offered by credit unions, for instance, have rate caps of 18%. That means your rate can never surpass this threshold.
Why a changing HELOC rate could be beneficial now
In some cases, having a HELOC rate that changes so often can be stressful, but in other cases, it can be beneficial. For instance, if market HELOC rates fall when your HELOC rate is slated to change, it means your rate will fall, too — taking your payment down with it.
This is exactly what could happen if the Fed follows through on its expected rate cuts later this year.
“HELOCs are tied to the prime rate, which follows the movement of the Fed funds rate,” says Debra Shultz, vice president of lending at CrossCountry Mortgage’s The Shultz Group. “Every time the Fed raises or lowers the Fed funds rate, HELOC rates tied to the prime follow.”
Federal Reserve Chairman Jerome Powell has said that a rate cut is “on the table” for as soon as September, and according to the CME Group’s FedWatch Tool, there’s about a 100% chance that happens.
Don’t celebrate just yet, though. As Bill Westrom, CEO of equity and debt management company Truth in Equity, explains, “it’s virtually impossible to forecast interest rate changes on HELOCs unless the change is announced.”
“The Fed changes the prime rate based on economic conditions,” Westrom says. In short: “Watch the economy, watch the Fed.”
The bottom line
If you’re worried about changes to your HELOC rate, it is possible to get a fixed-rate HELOC in some cases, though they aren’t as common. Be sure to shop around if this is something you’re looking for.
And if you do get a HELOC with a variable rate, make sure you’re clear on all the fine print before closing — the caps, the terms, when payments are due, etc. This is critical to ensuring you can budget properly for your new loan.
Legislation to expand Social Security benefits to millions of Americans cleared a key hurdle in the U.S. Senate on Wednesday afternoon and is now headed toward a final vote.
Senators voted 73-27 to approve a motion to proceed with consideration of the Social Security Fairness Act, according to an unofficial Senate tally shown in a webcast on the floor of the chamber.
“We will vote on taking up the Social Security Fairness Act to repeal flawed policies that eat away at the benefits of those who’ve worked as teachers, firefighters, postal workers, or public sector workers,” Senate Majority Leader Chuck Schumer said on social media shortly before the procedural vote. “Retirees deprived of their hard-earned benefits will be watching closely.”
The New York Democrat has pushed to bring the measure up for a full vote, which would eliminate two federal policies that prevent million of Americans, including police officers, firefighters, postal workers, teachers and others with a public pension from collecting their full Social Security benefits.
“Social Security is a bedrock of our middle class. You pay into it for 40 quarters, you earned it, it should be there when you retire,” Ohio Senator Sherrod Brown, a Democrat who lost his seat in the November election, told the chamber ahead of Wednesday’s vote. “All these workers are asking for is for what they earned.”
Sen. Thom Tillis spoke against measure, saying that while a small percentage of people are not getting what they should from Social Security, enacting what he framed as an unfunded government mandate that would increase the federal deficit “is not the way to fix it.”
“This bill will take $200 billion during the 10-year period out of the Social Security trust fund without any way to pay for it,” the North Carolina Republican added.
What is the Social Security Fairness Act?
Decades in the making, the Social Security Fairness Act would repeal two federal policies — the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) — that broadly reduce payments to nearly 3 million retirees.
That includes those who also collect pensions from state and federal jobs that aren’t covered by Social Security, including teachers, police officers and U.S. postal workers. The bill would also end a second provision that reduces Social Security benefits for those workers’ surviving spouses and family members. The WEP impacts about 2 million Social Security beneficiaries and the GPO nearly 800,000 retirees.
“This stuff takes time, but 21 years is ridiculous,” said Brown of the process. The Senate held its first hearings into the policies in 2003.
The measure, which passed the House in November, had 62 cosponsors when it was introduced in the Senate last year. Yet the bill’s bipartisan support eroded some in recent days, with some Republican lawmakers voicing doubts due to its cost. According to the Congressional Budget Office, the proposed legislation would add a projected $195 billion to federal deficits over a decade.
At least one GOP senator who signed onto similar legislation last year, Sen. Mike Braun of Indiana, said he was still “weighing” whether to vote for the bill. “Nothing ever gets paid for, so it’s further indebtedness, I don’t know,” Braun said last week, the Associated Press reported.
“In the end it’s going to come down to individual members are going to make their own decisions about where they want to come down on that,” incoming Republican leader John Thune said at a press conference Tuesday. “Obviously I am concerned about the long-term solvency of Social Security and that is an issue I think we need to address.”
Without Senate approval, the bill’s fate would end with the current session of Congress, and would need to be re-introduced in the next Congress.
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