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Low Introductory Rates Can Cost You More


In this example, a borrower qualified for a $140,000 home equity line of credit and has earmarked $27,000 for home remodeling, $12,500 for tuition, $20,500 for car payments, with approximately $75,000 remaining available credit for an emergency fund.

By Lisa Scontras

Did you know that scoring the lowest interest rate on a home equity loan could cost you more money in the long run?

So-called introductory rates for home equity loans may look attractive in the short term, but you need to be aware that some of these low interest rates automatically increase once the honeymoon period is over.

“Most equity lines are variable rates,” says Derek Wong, vice president of retail product management at First Hawaiian Bank. “But First Hawaiian Bank has a unique feature where you can lock the rate on certain draws or purchases.”

For instance, if you buy a car or pay for tuition, you can select a low fixed-rate option so that your interest and payments are stable and won’t increase when rates rise.

“Usually the teaser rates that are advertised to entice you are good for a short term – usually 12 months or less,” says Wong. “After the introductory period ends, it automatically becomes a variable rate, and that rate can vary.”

At First Hawaiian Bank, a program is available to lock in a fixed rate for up to 12 years.

“Though those short-term teaser rates are attractive, in the long run, we feel it is important to help the borrower pay back the debt,” he says.

With all of the uncertainties inherent in the economy already, Wong recommends looking for a product that gives homeowners more control with structured monthly payments. And with interest rates expected to rise, locking in rates now can protect you against future increases.

“Certainly competitive rates are important, but borrowers should also consider service – is it local and does the bank put resources behind the equity product?” says Wong. “First Hawaiian is the largest equity lender with great local service and assigned personal bankers to help determine what is the best product for you together with the flexibility of locking in a rate.”

Whether it is consolidating your debt, paying for college tuition, making home improvements or taking a vacation, a home equity line of credit is typically a less expensive alternative to using a credit card.

“By fixing your interest rate, it keeps your monthly payments low,” Wong says. “Additionally,

interest paid on home equity loans or lines of credit can be tax deductible, the biggest distinction from using more traditional credit.”

Equity is determined by taking the appraised value of the property less any amount you presently owe. Qualifying depends on the amount of equity, income, other debts and other assets of the borrower.

“If you own a home, the smartest way to borrow is through a home equity line with fixed rate locks,” says Wong. “The rates are low and it is tax deductible.”

If you already have an equity line where the limited-time rate has already jumped, converting to a fixed-rate line of credit at First Hawaiian Bank is a way to set up a fixed-rate loan for that outstanding balance.

“We’ll move your equity line over and help you fix the rate and payment that makes sense for you,” says Wong. “First Hawaiian is at the top in home equity financing and will continue to support the Hawaii market even while mainland lenders are scaling back.”

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