HELOCs: A Conversation Topic

When the central bank for the United States makes a move, it makes headlines. The Federal Reserve raised its short-term interest rate by a quarter percentage point, a move that Orion’s brokers saw impact home equity lines of credit (HELOCs) immediately. Interestingly enough, as our experienced brokers know, long-terms rates, like 30-year mortgages, have dropped slightly since the Fed’s move! What’s up with that?

Let’s take a quick look back - why did it raise rates? The increase in rates in June, but not last week, was widely anticipated by the industry and came on the back of a strengthening labor market and an economy that has been growing at “a solid rate,” according to a statement released by the Fed. The increase paints a target range of 1.75 percent to 2 percent federal funds rate. There are at least two more rate hikes anticipated during the year, which will bring the total number of rate increases to four in 2018. (The next is forecast for the September meeting.)

The Fed rate hikes are less likely to impact long-term mortgage loan borrowers this time around. The Federal Reserve announced their decision to raise the federal funds rate by 25 basis points. One thing to point out is that there are fewer consumers today whose debt is tied to short-term rates, and because most of the consumer debt is from mortgages, this means the recent short-term rate hikes will be less impactful than what was seen in the mid-2000s.

The impact of these hikes was felt on HELOCs immediately, however. With the Fed increasing the federal funds rate, the interest rates on credit cards and HELOCs rose within a billing cycle or two. Since adjustable rate mortgage loans and HELOCs are based on short-term rates, they’re most likely to get impacted immediately. And Orion’s brokers are indeed seeing some borrowers interested in refinancing from their current financing into something else.

Orion’s brokers are reminding their valued clients that rates aren’t the only factor in deciding on a mortgage. Ask one of our AEs about Orion’s programs that will help your borrower.

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