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Oh boy, oh boy. The cost of credit is going up (again).
The Fed is widely expected to raise its benchmark Fed Funds Rate to 3.75% today and that's bad news if you have a "first lien HELOC", a popular mortgage product popular from 2003.
First lien HELOCs are lines of credit that serve as a primary mortgage.
When Prime Rate was 4.000%, first lien HELOCs were an attractive mortgage product for a certain class of homeowners. They provided the flexibility of a traditional home equity line of credit, and the low cost of a Prime Rate-based loan.
At 6.750%, Prime Rate is no longer "low cost".
Holders of first lien HELOCs would be well-served to remortgage into a new loan with lower monthly carrying costs -- maybe a 3-year ARM with interest only options, or something different depending on the overall financial picture.
Regardless, with long-term mortgage rates sitting below Prime Rate, the first lien HELOC is a mortgage product whose time appears to have passed. And you don't have to be a Harvard student to figure that out.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
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