Ever since the Fed Funds Rate has been dropping since last October, the popularity of HELOCs has grown significantly. Now, while popularity has grown, availability is still another story. With tightening guidelines and slipping values in California, HELOCs have been a little tougher to qualify for lately. Fortunately, the Fed Funds Rate has made HELOCs much more affordable and thus quite popular. If you were considering a HELOC or currently have one already, here is a piece of news that you may find interesting.
Holding steady, but expect increases next year
Currently the Fed Rate has held steady at 2% since May 2008, while the Prime rate has also held steady since May 2008 at 5%. Today, analysts have agreed that the Fed Funds Rate should hold steady for 2008 but can expect an increase sometime next year.
Keep a Close Eye on that Fed Rate
Based on analyst expectations, those with HELOCs can stay comfortable for a bit longer as it seems there is no immediate rush to increase rates yet. Those who are considering HELOCs should then keep in mind that the advertised and quoted rates are based on today’s market with no guarantee of the future. With these analyst expectations in mind, it is very likely you can expect to pay more for your HELOCs as soon as next year.
Consider the History of the Fed Fund Rate
If you take a look at the historical charts of the Fed Fund Rate, you can see that fluctuations can be quite volatile. Consider that in June of 2003, the Fed Rate was at 1.00% - and by June of 2006 it had climbed to its peak at 5.25%. Now based on the current market, we can’t expect to see the trends we saw during 2001-2006. But either way, those in the market for HELOCs should remember that the Fed Fund Rate is a key component of their interest rate and thus keep them under a close watch. For more information about finding a HELOC for you, make sure you get the best deal and read “How to Shop For Your HELOC”.
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This is great news for first time homeowners too. You still have some time to get a great rate. As for HELOCs, do you think there will be more freezes on these lines of credit?
I think freezing HELOCs will depend on your specific area and lender. However the trend seems to show that it is still probable since its still in the lenders benefit to reduce this calculated risk. Until values prove stable, banks will still be looking for ways to cut costs and liabilities.
One thing I didn’t mention in the post, but will address quite soon is the effects of taking out a HELOC. The biggest oversight that some consumers miss is that when taking out a HELOC, depending on the date of origination and lender,this could affect your chances at refinancing later on. I will definitely address this in a later post, so keep an eye out.