HELOC Interest Rates

I got a HELOC loan 2 yrs ago. It started out at a reasonable interest rate. In the last year it has gone up to 10%. Why is it not dropping now that the interest rates are declining? Is it an oversight of the bank?

1 Answer

Home Equity Lines of Credit or HELOCs are typically written as adjutable rate loans.  As with any adjustable rate loan, the two primary factors that determine your rate are: the  Index and the Margin.  You also need to be aware of how often your rate may adjust and if your loan has any floor or ceiling to the rate you may be charged.

You should be able to find all of the above information in the "Note" that you signed at closing.  First, determine how often your rate may adjust; most HELOCs may adjust on a monthly basis.  Next, determine what your index is and where you may find its value.  Then, find the margin and add this to the value of the index; this result is the potential rate.  Finally, determine if the potential rate is limited by any ceiling or floor.  If the potential rate is higher than the ceiling, your rate will be the ceiling rate; if the potential rate is below the floor, your rate will be the floor rate.

Your loan rate is tied to the index, which may not always move in the same direction as many current "rates".  This would explain why your rate is moving up as other rates are dropping.  While it is possible that your bank has made a mistake, it is highly unlikely.  Contact your bank if you feel that the calculation of your rate is in error.