By now, most people have heard that the Federal Reserve has “paused” its relentless interest rate increases after seventeen consecutive quarter-point hikes.

The pause is generally seen as a temporary “wait and see” step and that a resumption of rate increases is a definite, perhaps likely, possibility.

Still, the announced pause is an action warmly welcomed by HELOC borrowers who have seen average rates on their loans rise from the 4.50% range to nearly 8.75% over the course of the Fed’s rate hikes. Most HELOCs are indexed to the prime rate which moves lock-step with Fed rate changes.

But the news may get even better for HELOC users. According to a report in the Wall Street Journal (August 9, 2006), the historical record shows that when the Fed “pauses” in a rising rate environment, it has signaled a rate peak. The Journal’s James B. Stewart reports:

“I was curious to see just when the Fed last paused in a rate-raising campaign, in the sense that it stopped increasing rates for one or more meetings, and then resumed. I looked at every Fed rate decision since 1914, and guess what? The Fed has never paused in a campaign to raise rates. Sometimes it has held rates constant for several meetings, but the next move has always been a cut.”

Of course, there’s always a first time. But HELOC users who’ve been spent most of the last two years strategizing ways to lock in rates on their loan balances may want to carefully consider whether holdin on to their variable rate HELOC may be the smarter move at this juncture.

Technorati Tags: Federal Reserve, Fed’s rate hike, Fed

The seventeen consecutive rate hikes passed on by the Federal Reserve since mid-2004 have had a big impact on HELOC borrowers and lenders. Many borrowers have refinanced their HELOCs into fixed-rate home equity loans or paid down HELOC balances to escape higher monthly payment requirements - which in some cases have more than doubled.

Lenders, meanwhile, have responded with expanded offerings like HELOCs with fixed rate lock options (FRLO). Now comes word of an additional offering - a fixed rate HELOC.

In June, Secured Funding (Costa Mesa, CA) launched a HELOC loan product that has a fixed rate for the first year, then reverts to to a traditional HELOC with a variable rate. According to Home Equity News, Secured Funding plans to offer HELOCs with two- or three- year fixed rates in the future. According to the company:

The new HELOC offers the protection and security of fixed interest rates in a rising rate environment, but still provides the flexibility of a HELOC, allowing borrowers to draw on their lines.

Strangely, Secured Funding’s website doesn’t appear to have any additional information about this new product (as of 7/29/06). A call to the firm confimed they are offering this product, but the customer service rep we spoke with could not point to specific information about the fixed rate HELOC on the web.

An interesting concept and, perhaps, a promising product. If you’re interested in learning more, Secured Funding’s toll-free number is 800 891 2105.

Technorati Tags: rate hikes, Federal Reserve, HELOC borrowers, HELOC, fixed-rate home equity loans, Secured Funding