Those of you with variable home equity line of credit, do you ever find yourself thinking, “I’ve got two loans -the first mortgage has a great rate and the second is a variable home equity line of credit with a steadily climbing interest rate.
Rain City Guide
Your Guide to the Seattle Real Estate Market
Hi Grier,
Nice article. A couple of comments.
Your first paragraph suggests that the Federal Reserve has been increasing the prime rate. For clarity, the Prime Rate is a market determined rate that commercial banks charge (usually corporate) customers. The Fed meanwhile controls the discount rate, a short term institutional lending rate for borrowing directly from the Fed.
Second, and perhaps more important, a blended average interest rate won’t show the potential impact of rising rates on a client’s monthly payment. It may be more useful to model both mortgages against the index of the adjustable, up to the interest rate cape (if it has one).
In the end, I’m not sure a lender is the most qualified to do this sort of analysis. A fee only personal financial advisor is probably better suited, but watch for those who only offer prepackaged solutions.