A combination of rising interest rates, a stronger economy and a new tax code could contribute to an exceptionally strong year for the home equity line of credit (HELOC), according to a forecast
from Greg McBride, Chief Financial Analyst for Bankrate.
McBride is predicting three rate hikes from the Federal Reserve during 2018. With HELOCs linked to the prime rate that moves in accordance with the Fed’s monetary policy, McBride forecasts a HELOC borrowers could see a “bump of 75 basis points in the coming year.”
“Many HELOC borrowers will be welcomed to 2018 with a quarter-point increase in their rate courtesy of the Fed’s December rate hike,” said McBride. “My end-of-year prediction on the average HELOC rate is 5.85 percent.”
McBride added that homeowners need to plan for managing home equity debt in the new rising rate environment.
“Refinance into a fixed-rate home equity loan; ask your lender to freeze the rate on your outstanding HELOC balance; or refinance into another HELOC to start the draw period clock all over again,” he continued. “The increase in rates is compounding the issue of HELOC borrowers coming to the end of their draw period and seeing their payments jump as the line of credit switches into repayment mode. Together it’s a double whammy.”