topic Stay with promo rate or lock in? HELOC in Mortgage Loans

Stay with promo rate or lock in? HELOC

23matched — Mon, 25 Jul 2022 18:52:29 GMT

I just received a $85k HELOC loan from PenFed (I will post a comparison review later on Discover vs. NFCU vs. Lower vs. PedFed). I received a .99% intro rate for 6-months, but also have an option to lock in my rate for any draws over $10k. I did an advance for the $85k into checking and am waiting for a call from a loan specialist to lock in the rate, which takes 3-4 days, apparently. My interest rate is 4.50%. My margin of .5% + Prime. Floor is 3.75%. So, I am debating whether I want to forgo my 6 month promo and lock in my rate to ensure my payment does not skyrocket. I do intend to double pay once my credit cards are paid down. Any thoughts?

30 year HELOC.

Thanks,

Re: Stay with promo rate or lock in? HELOC

cashorcharge — Mon, 25 Jul 2022 19:56:09 GMT

If you went for the HELOC versus just a loan and you took the entire credit limit out today, why wouldn't you have taken the loan that locks the rate for the entire term versus the adjustments in a HELOC? The draw period on the HELOC is likely 10 years so it'll adjust for the next 10 years? You mentioned a 6 month lock...what happens after the 6 months? I wouldn't think the LOCK would be for 10 years or else that defeats the purpose of a HELOC versus a loan?

Re: Stay with promo rate or lock in? HELOC

DSTforlife — Mon, 25 Jul 2022 22:50:58 GMT

If you lock in the rate, then you won't have to worry about the interest rate increase. I'm no economist, but I do not see rates decreasing any time soon...and the .5 margin is good. I have a question, if you lock in the rate, does that mean you start the repayment period immediately, or is it still interest only (at the locked in rate) for the first 10 years?

I'm assuming once you lock in the rate, then you are required to pay principle, which is good. That way, once you pay it down, it frees up the funds to use for other purposes down the road.

Personally, I like the idea of a HELOCs over HEL because of the flexibility...especially when you have the ability to lock in rates for your draws.

Re: Stay with promo rate or lock in? HELOC

youdontkillmoney — Mon, 15 Aug 2022 04:53:32 GMT

Not to hijack the thread, but to explain the Penfed HELOC since what was described is exactly what I was approved for, but for $193,600.

PenFed HELOC you have a 10-year draw, interest only payments, then after 10 years, 20-year principal and interest repayment begins.

You can lock in the rate for a portion of the borrowing during the intial ten year draw, here's the fine print:

Fixed Rate Conversion Option

During the draw period (10 years), there is an option to lock any portion of the HELOC into a fixed rate. The minimum amount to be locked is $10,000.00 (Texas is $4000.00) and up to the credit limit. Once the amount is locked, then it will be a loan with principal and interest payments for 20 years. You can lock the loan two times per calendar year with a maximum of three active locks. Your annual percentage rate for a fixed rate advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock in Margin described in the lock-in agreement. After the HELOC has appeared on PenFed online, please contact a Mortgage Care Representative at 1-800-585-9055 and request the conversion option and complete the HELOC Fixed Rate Advance Lock-In Agreement.

As for the interest rate, the 0.99% is an introductory rate for the first six months only, then it jumps up to the variable rate during the 10-year draw period:

Introductory Rate:
This loan includes the promotional rate for the advance for the first six (6) months following the effective date. The annual percentage rate of .99% will apply to your credit account. Upon expiration of the Promotional Rate, the Annual Percentage Rate for all advances and balances will return to the original amount.

This rate is variable, subject to change monthly based on the Prime Rate.

Margin: .5% - The margin is used to determine your rate. Prime Rate + Margin will be your interest rate. Please note the floor rate is 3.75% so it will never be lower than that.