Author Topic: Time to lock in the interest rates?  (Read 1448 times)

MoonPilgrim

  • 5 O'Clock Shadow
  • *
  • Posts: 78
Time to lock in the interest rates?
« on: June 19, 2013, 01:43:03 PM »
I have a HELOC on a rental property at 6%, with an option to lock at 0.75% higher than my current rate.  My balance is $28K, and I anticipate it will take two years to pay down.  It sounds like rates might start increasing soon--do you all think it's time to lock in, or is it premature?  I plan on keeping the HELOC account open as a part of my fall-back-last-resort-emergency-catastrophe strategy.


tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2199
Re: Time to lock in the interest rates?
« Reply #1 on: June 19, 2013, 02:55:37 PM »
If you plan on paying it off in two years then no don't refinance.  Long term rates may be on the rise but short term rates are not - HELOCs are based on either LIBOR or Prime and both are primarily driven by the fed funds rate. It is unlikely that your HELOC will increase at all in the next year and not more than 0.75% in the second year - so average of 0.375% over two years based on current balance (actual will be less when factoring payments).

 
This is assuming you are in the US though, which you may not be given your rate - that would be prime+2.75%- that seems very high to me.  FWIW - my HELOC is AT 2.75% on my primary residence, there should be a premium for the rental but not that much.

MoonPilgrim

  • 5 O'Clock Shadow
  • *
  • Posts: 78
Re: Time to lock in the interest rates?
« Reply #2 on: June 20, 2013, 06:32:21 AM »
Thanks!  Yes, I'm in the US, and I had a really hard time finding a lender who would do a non-owner occupied HELOC for a home valued at less than $50K.  I'm in an area with low home prices, but decent rent (high demand due to nearby universities). 

I was ready to buy my second rental, and needed to leverage my first income property (owned free and clear) to get the cash for the down payment.  I had more equity in the rental than my primary residence, so that's just how things worked out.  The cash flow from the two properties should help get the balance paid down.