Streching Your Home Equity Dollar
By Lisa Scontras
Home equity lines of credit (HELOCs) are a popular financing option because they offer homeowners some of the lowest interest rates available and the interest may be tax deductible.
Derek Wong, Vice President of Retail Credit Products at First Hawaiian Bank, describes HELOCs as providing “quick, easy access to large amounts of low-rate funds.”
But the savings don’t end there. If you understand some of the basics, shopping for the best HELOC program may save you hundreds, even thousands of dollars a year. Here’s what to look for when you’re shopping for the best line of credit:
1. INTEREST RATES
A HELOC uses a borrower’s home equity as collateral so it is a “secured line.” Interest rates are generally much more attractive for secured rather than un-secured lines. “Because the property is used as assurance that the line will be paid back, there is less risk to the lender, therefore a lower rate to the borrower,” says Wong.
2. INTRODUCTORY RATES
Many financial institutions offer an extra-low introductory rate. Make sure that you qualify for that rate. Some banks use Risk Based Pricing, and if you don’t have a good credit score, your rate may be higher.
“Just a half percentage point difference in rates could lead to hundreds of dollars a year in savings — or thousands over the life of the line,” says Wong.
“Right now, First Hawaiian Bank is offering a special promotion with one of the lowest introductory rates in town,” he says. “It’s also important to understand how the rate is calculated after the introductory period. While variable rates fluctuate based on standard indexes, it is good practice to check what your financial institution will be charging after the introductory period is over, since that is the rate you will be paying for the remainder of your HELOC term.”
3. FIXED RATE OPTIONS
Another way to save money is by locking in a fixed rate instead of going with the standard variable rate. Fixed rate options and locks enable the borrower to “lock” in an interest rate for a specific term.
“Locks are useful if interest rates are currently low and you know that you will need additional time beyond the introductory period to pay down your balance,” Wong says.
The term is important to know up front because this is the time you’re given to pay off the line. In addition, the term will affect the size of your monthly payments — the longer the term or amortization period, the smaller the monthly payment for the same outstanding balance. Terms should be flexible enough to give you access to the funds for the duration you need while providing sufficient time to repay the line.
You should always inquire about relationship discounts as many financial institutions offer discounts based on your current banking and payment behavior. First Hawaiian Bank Priority Banking Level 3 customers receive an additional 0.35 percent off the HELOC variable rate. Priority Banking Level 2 customers receive 0.25 percent off the HELOC variable rate.
6. HELOC FEES
You may be required to pay certain fees to open and maintain a HELOC. Some financial institutions may waive those fees, so you should ask for an itemization of the fees you’ll be charged.
Understanding the details of a HELOC may seem daunting, so it is essential to have friendly, knowledgeable bankers to help you throughout the process. The speed in opening a HELOC is important to enable quicker access to funds when you need them most. You may also want to consider a financial institu-
tion with local underwriting and servicing, which may make the approval process faster and checking on the status of your line more convenient. First Hawaiian Bank Personal Bankers can answer your questions and help you select the right financing products to meet your needs.
If you are in the market for a HELOC, or want to refinance an existing HELOC with an interest rate that is higher than today’s going rate, knowing what to look for is key to finding a product that best meets your needs. Get educated. Talk with a personal banker at First Hawaiian Bank today who can help guide you through these options. A HELOC could save you even more than you thought.