January 4, 2017 in Home Equity
HELOCs

If the Federal Reserve’s prediction of three interest rate hikes this year comes true, rates on home equity lines of credit, or HELOCs, will rise, too — probably by three-quarters of a percentage point.

HELOCs are linked to the prime rate, which moves up and down with the Fed’s monetary policy. The Fed raised its federal funds rate in December 2015, then again in in December 2016.

Although the central bank expects three increases in 2017, it’s worth mentioning that the Fed predicted that it would raise the fed funds rate four times in 2016 but hiked the rate only once.

RATE SEARCH: If a home equity loan is in your future, check out the rates at Bankrate.com today.

Most HELOCs have a 10-year draw period, during which the minimum monthly payments are only the interest on the amount you owe. But after that draw period ends, a repayment period begins. That’s when you have to pay principal, as well as interest.

If you owe a lot, the transition to the repayment period can cause your monthly payments to go up drastically.

Lee, of MSA Mortgage, says you can refinance the HELOC if you find yourself in this position. Or, you can do a cash-out refinance of your primary mortgage to pay off the balance on the HELOC.

READ MORE: Here’s how to refinance a HELOC.

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