I have a question for all the banking mavens out there. My wife and I got an adjustable rate HELOC in 2008. We had initially wanted a fixed rate, but Citibank touted a product that was adjustable, but could be locked into a fixed rate. There was no overt alert that the fixed rate would be substantially higher than market rate. Our interest rate is now approximately 3.75%, and when my wife has inquired about locking in a fixed rate, she has been advised that we wouldn't want to do that, as the rate would fix at something around 9%. Reading the terms of the loan, it indicates that the fixed rate "will be determined based upon the value of a margin (the "Conversion Margin") and an index (the "Conversion Index")..."Later, it identifies the Conversion Index as the 3 year interest rate swap from the Federal Reserve (presently 1.82). However it identifies the Conversion Margin as a margin determined at Citibank's sole discretion. It says it is based the term and rate available from Citibank for customers having comparable line sizes, LTV, and credit scores.
We are concerned as to how the bank could guess at 9% without further info, and whether we should be trying at all lengths to get into a fixed rate loan. Any thoughts, experiences, or advice would be much appreciated.
wes0205 said: I have a question for all the banking mavens out there. My wife and I got an adjustable rate HELOC in 2008. We had initially wanted a fixed rate, but Citibank touted a product that was adjustable, but could be locked into a fixed rate. There was no overt alert that the fixed rate would be substantially higher than market rate. Our interest rate is now approximately 3.75%, and when my wife has inquired about locking in a fixed rate, she has been advised that we wouldn't want to do that, as the rate would fix at something around 9%. Reading the terms of the loan, it indicates that the fixed rate "will be determined based upon the value of a margin (the "Conversion Margin") and an index (the "Conversion Index")..."Later, it identifies the Conversion Index as the 3 year interest rate swap from the Federal Reserve (presently 1.82). However it identifies the Conversion Margin as a margin determined at Citibank's sole discretion. It says it is based the term and rate available from Citibank for customers having comparable line sizes, LTV, and credit scores.
We are concerned as to how the bank could guess at 9% without further info, and whether we should be trying at all lengths to get into a fixed rate loan. Any thoughts, experiences, or advice would be much appreciated.
-Warren A HELOC for the most part is a variable rate loan. HELs sometimes have fixed rates. Penfed used to have 4.99% fixed HEL, not sure if they still do but Penfed is fairly competitive in this regard. Note that HEL may not allow you to draw on it after the initial loan.
A line of credit is typically a variable rate product. Many HELOC's have a conversion feature which will permit you to convert a specific amount to a fixed rate product (and reduce the line of credit by the same amount). For example, say you have a $100k LOC at prime with an outstanding balance of $40k. You could convert the $40k to a fixed rate, five-year loan, and the line of credit would be reduced to $60k. Your fixed rate portion is most likely going to be at a higher rate.
wes0205 said: I have a question for all the banking mavens out there. My wife and I got an adjustable rate HELOC in 2008. We had initially wanted a fixed rate, but Citibank touted a product that was adjustable, but could be locked into a fixed rate. There was no overt alert that the fixed rate would be substantially higher than market rate. Our interest rate is now approximately 3.75%, and when my wife has inquired about locking in a fixed rate, she has been advised that we wouldn't want to do that, as the rate would fix at something around 9%. Reading the terms of the loan, it indicates that the fixed rate "will be determined based upon the value of a margin (the "Conversion Margin") and an index (the "Conversion Index")..."Later, it identifies the Conversion Index as the 3 year interest rate swap from the Federal Reserve (presently 1.82). However it identifies the Conversion Margin as a margin determined at Citibank's sole discretion. It says it is based the term and rate available from Citibank for customers having comparable line sizes, LTV, and credit scores.
We are concerned as to how the bank could guess at 9% without further info, and whether we should be trying at all lengths to get into a fixed rate loan. Any thoughts, experiences, or advice would be much appreciated.
-Warren
Shame on you for not reading the fine print and understand this "feature" of the loan you planned to use. Shame on Citibank for hiding this important detail in the fine print. They highlight a "feature", but it's not really clear what benefit the "feature" practically provides.
Fortunately, the prime rate in the short term should stay low, so you don't have any immediate need to convert. Instead, accelerate the payment to eliminate this loan before rates increase significantly. How much do you owe and how long did you plan to convert to fixed?
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