No credit card required
Browse credit cards from a variety of issuers to see if there's a better card for you.
I did something stupid
Used a Variable interest rate HELOC to cover the down payment on a new home.
My rate has jumped from 5.1% - to 6.3% in just the last month.
The balance is high - 75K.
How do I get myself out of this mess ?
I can lock the rate - but then im paying principal and interest - and right now i'm paying interest only.
The payment would go from 400 at Interest Only to probably around 800 - for principal and interest.
Should I just lock it anyway - because interest rates are going to get higher and higher ?
If things get really horrible - i will just sell my rental property once the current tennants term expires in 10 months -- that I used for this HELOC - and hope there is enough equity to cover everything.
There should be enough equity - home has appreciated 100% in the last 7 years.
This could totally screw my life up - so any help is greatly appreciated.
How often is your variable rate subject to change ? Most indicators seem to be pointing to continued interest rates hikes in the short term.
@pizzadude wrote:How often is your variable rate subject to change ? Most indicators seem to be pointing to continued interest rates hikes in the short term.
It is subject to changes each month - so as Fed Raises rates - I get more screwed every month or so.
Going through the same problem with my HELOC. My minimum payment has gone from $390 to $426 since the start of the year as the variable rate has moved from 4.5% to 6.5%. I called my credit union about it and was told it was a quarterly recalculation. The $426 payment is interest w/ principal on 46k. If it was 75k the payment would have moved from $636 to $695 in this time, a $60 dollar move.
I was worried about this too earlier in the year of what happens if my product has a runaway interest rate. With an economy fueled by debt it puts a ceiling on how high interest rates could go before it it cracks credit markets. Current 12 month libor rate is right at about 4% which is what the interest rate on my product is tied to has likely peaked. The fed funds discount rate is lagging what the interchange market has priced in and the rate on the 10 year treasury has dipped down to 2.78%. Global demand destruction for treasury bonds as emerging markets can't afford to issue debt in reserve curriencies places a lid on how high interest rates can go.
OP points to one of the drawbacks of taking out a larger HELOC balance is the payment begins to stack up. You can't really take 200k and use it effectively as a downpayment because that would be $1500 dollars a month in of itself plus the new mortgage and your existing mortgage. But if you take out just 50k for a DP and keep that payment under $500 that is just like making a car payment, relatively nothing to deal with. FWIW, 50k is 5% down on a 1 million dollar property enough to go conventional.
For my next LOC I'm looking at a business line of credit interest only for 5 years. Taking out only $25,000 at 7% that is only $145 a month to keep your cash flow rolling. The key in all of this again is to just take out the amount you need and nothing more to keep the monthly payment in check.
I would think that if you lock it now....and the rates go up, you'll be saved from that. And if rates go down in the future...then you can refinance that amount and the with equity, you shouldn't have a problem. If you lock, does that then lock your access to the HELOC available limit and you begin the 20 year repayment term? Your HELOC holder should be able to give you some accurate payment options too....