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| *Loan,banking and credit>>>credit line |
What does it mean to "lock" just a portion of a home equity line of credit? |
I am a first time homeowner.... and just got a $50,000 equity line of credit. They told me I could "lock" only a portion of it now (i.e. $40,000) and then call back at any time and lock another chunk. I asked her what she meant, but her answer went right over my head... Please explain in dummy terms what it means to "lock" $40K and why I want to do that? And do I want to call back and lock the rest? I am sooo confused. Thanks so much for any information anyone can provide!! I am speculating a bit here, because that's not much to go on. But here's what I think. I think that the "lock" they're talking about refers to fixing the interest rate for a portion of the amount that you would borrow. You should read the part of your loan agreement that applies to interest rates very carefully. It probably includes a variable rate based on some economic indicator, like the Prime Rate. And it probably talks about how that rate is calculated when you borrow various amounts and different times against the line of credit. I imagine that calculation can become quite complicated. By locking the rate for part of your line of credit, you would be eliminating the variability and part of the complexity. Say that the interest rate as currently calculated comes out to 12%. If you borrow $10,000 now, it will be at 12%. Then say you borrow another $15,000 in six months. If the rate at that time is calculated to be 10% (because of the variability) then that's good for you. The $15,000 will be at 10%. But if the rate goes up to 14% in six months, that's not so good. So by locking the rate, you eliminate the uncertainty. You would essentially be betting that interest rates will be going up rather than down. However, at the moment we seem to be at or near the top of an interest rate cycle. The Federal Reserve has raised the rate many times over the last year and a half, and the expectation is that they will have to start dropping it again soon. So that might not be a good bet for you to make at the moment. You may be better off waiting until interest rates drop again, and then you might want to lock some or all of your credit line. I hope this helps. Source(s): Personal finance info at http://finance.necessaryvirtues.com/... I think you need to have her explain it better to you.. I have never heard of such a thing. Yeah you can "lock" an interest rate -- like if you locked in yesterday at 7.75% or what not? I don't know why the heck she would just have you lock a portion of it and not all of it! Call her ASAP and ask her what she means and what is really going on... |
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