Velocity Finance - Home Equity Line Of Credit Rates

Home Equity Line Of Credit Rates - So Low, Yet So Unpredictable

At the outset of 2006 thee average home equity line of credit rates are somewhere around 5.5%:

these rates will be lower the more home equity you actually have compared to your desired amount
rates will decrease the more money you look to access ( a higher amount generally means more equity means a greater preserved sense of stability.)
these rates are lower than the ones you will find on a traditional home equity loan because these are all ARMs - you cannot find a fixed rate home equity line of credit.

Today they are cheap, tomorrow they might not be so cheap and you need to prepare for that. but you also need to prepare for some pretty good financial times ahead.

Good times with low home equity line of credit rates

When you only pay interest for the first few years of your home equity lines of credit, and when the home equity line of credit rates remain constant no matter how much of your equity you access, you can feel pretty good about the affordability of these tools at the outset. Lets say you apply for a $30,000 HELOC with a rate of 5.75%, and imagine you initially take out only $10,000 for a new porch. If your mortgage term is 30 years you'll only pay $47.92 a month for the interest only term - now thats an affordable monthly payment! Once the principal kicks in your monthly payments will be $70.21 - still manageable but definitely greater than your initial interest only payments.

Assuming you don't breathe and remain set in time

The above calculations are only reliable under the following conditions:

The home equity line of credit rates never change - they're adjustable, and somehow the market remains as is throughout the course of your mortgage.
You only take out the $10,000. Resist the temptation to access that additional $20k? Yeah right - the money is spent.

You can never be sure what direction your home equity line of credit rates will go, and you will never be able to resist the opportunity to access all your your potential home loans. But who cares? You can access this money and repay it over 20 years - money well spent if you use the money to your greatest advantage.