Converting Variable Rates in an Escalating Rate Economy

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NEW YORK – April 30, 2022 – (Newswire.com)

iQuanti: The Federal Reserve’s decision to raise interest rates in 2022 as well as the prospect of half a dozen more rate hikes throughout the year are concerning, especially for those with HELOCs variable rate.

HELOCs are home equity lines of credit, where a lender provides a capped limit of money to borrow over a specific period of time. HELOC borrowing limits are based on securing the homeowner’s home value.

While HELOC interest rate are most often variable rate, if you have the option of converting your variable rate HELOC, now may be the best time to convert it to a fixed rate HELOC.

The Benefits of Converting to a Fixed Rate HELOC

The prospect of several more interest rate hikes through 2022 and possibly beyond is enough to make floating rate HELOC holders lose sleep overnight. However, the saving grace for HELOC borrowers is the ability to convert to a fixed rate HELOC.

The growing availability of fixed-rate HELOC conversion opportunities is a particularly attractive option in the current climate of inflation, rising interest rates and an impending recession.

Although there is potential for interest rates to stagnate and/or fall, most economists agree that several rate hikes are ahead. Convert your adjustable rate HELOC balance before these rate increases are implemented and you can take advantage of the opportunity to lock in a better rate.

Perhaps the most alluring aspect of converting from a variable rate HELOC to a fixed rate HELOC is that the new interest rate does not do not have the potential to rise, regardless of whether interest rates are significantly elevated in the months and years ahead. The new interest rate is locked in for the term of the loan, ultimately providing you, the HELOC borrower, with financial protection against the prospect of ever-increasing interest rates.

Recognize the risk of adjustable rate HELOCs

While adjustable rate HELOCs are certainly intriguing because they allow loan holders to earn potentially advantageous interest rates and only pay interest after borrowing against the loan, there is also a significant downside.

The repayment phase may not be applicable for a full decade or more, which means that the adjustable rate HELOC will not convert to that of the fixed rate variety for some time. Interest rates may increase significantly during this waiting period. Higher interest rates lead to higher monthly payments.

If interest rates continue to rise through 2022, those holding variable rate HELOCs will face higher payments once the repayment phase begins. Convert the HELOC to a fixed rate one and you won’t spend a single second worrying about the potential for the interest rate to gradually increase to a level that makes repayment much more difficult financially.

Every adjustable rate HELOC holder should be aware that the upper limits of interest rate fluctuations can be as high as 18%. Go back to the 1980s, when mortgage interest rates were at rock bottom. If history repeats itself, we could see interest rates rise to, or approach, this extremely high level. It’s not in your best interest to keep rolling the metaphorical dice with an adjustable-rate HELOC.

Convert your HELOC before interest rates rise again

The clock is turning. Be proactive in considering the benefits of converting your variable-rate HELOC to a fixed-rate HELOC, seize the opportunity to lock in a fair interest rate, and you’ll have paved the way to financial success.

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Converting Variable Rates in an Escalating Rate Economy

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