Home equity rates can only go so low
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It's hard to complain about home equity rates right now. The recent Fed cuts have taken them down so low, that if you have value in your home and you need to pay off some debts, it's a great idea to investigate.
But there is a reason for some to complain. Some people who have the loans or lines of credit, are getting a surprise because rate floors are now kicking in.
Home equity line rates are based on the prime rate. But some people signed up for rates that are below the prime rate. That can be as low as 1 percent lower which would bring the current rate down to 2 1/4 percent.
The key word is "would" bring the rate down.
In most cases it won't. In those cases, buried in the stack of papers you had to sign to get the loan, there's notice of something called a rate floor. The rates can go no lower than the floor. With some lenders, that floor is 3%. So no matter how low the prime rate, you won't pay less than 3% despite signing up for an account that says you should.
Granted, these are historically low rates. And it's something banks haven't had to deal with before.
If you have one of these lines, check your statements. The lowest rate may not kick in until next month's statement. Make sure you don't have a floor that keeps you from getting your best rate.
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Copyright 2008 The E.W. Scripps Co. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
