August 27, 2018
We are now more than halfway through the 3rd quarter of 2018. So we are well into the year with the “new” tax codes. Some of Orion’s brokers clients have moved to states with less of a tax burden. And there is still plenty of confusion about how the IRS will treat many of the changes, among them is the interest paid by home owners if they have a HELOC, and if it is deductible on the federal tax return.
Some people paid off their home equity lines of credit (HELOCs) before the end of 2017. Any decline in home equity balances could be offset by higher demand for other types of consumer loans. The worry is that only borrowers with blemished credit will take out home equity loans, increasing banks’ risk.
As with most questions involving mortgages and personal finances, Orion’s brokers know that there is no standard answer for everyone regarding paying off a loan. There are a dozen factors that brokers help their clients consider, and that Orion’s AEs may be able to provide advice given their experience in the broker and borrower community.
We will help our brokers do the math. But brokers will need to help their clients with questions: what is your current rate on your primary mortgage, what are your payments, what is the value of your home and the total balances we would be consolidating? And finally, and very importantly, what will be your new rate of interest and monthly payment?
Orion’s brokers know that almost every HELOC has its interest rate tied to the prime rate. The prime rate tends to move up and down when the Federal Reserve moves its lending rate up and down. In 2017 the Fed has hiked its rates three times, each time 0.25% (one-quarter of one percent), resulting in the prime rate also going up 0.25%, three times for a total of 0.75% (three-quarters of one percent) in 2017. This has continued in 2018, and the Fed has strongly hinted that another increase is in store in the September meeting next month. This will increase the rate on HELOCs.
So, our brokers are still seeing refinancing, in this case to help fix the rate on HELOC balances and consolidate it with a primary loan Ask your Orion AE about what makes the most sense for your client in this situation.