Wednesday, December 10, 2014
Why HELOC Reset interest rate charges are deceptive when a consumer also has credit card debt.
After the HELOC draw period is over, a HELOC goes into reset mode. HELOC reset means whatever amount the homeowner had drawn against the value of their home has to be paid back over a 10, 15, or 20 year time frame.
While a HELOC reset doesn't seem so bad since HELOC's presently have a low interest rate, what can make a HELOC reset devastating to pay back is if the homeowner also has high interest rate credit card debt.
The reason credit card debt is a killer once a HELOC reset occurs is that the HELOC reset requires the principal be paid back at an accelerated rate. HELOC resets are a BAD THING if one has a high interest rate credit card they are struggling to pay off. A HELOC reset monthly payment can be 2.0 to 2.5 times higher than a traditional 30 year mortgage. Paying the principal off too fast when high interest rate credit card debt is languishing and not being paid off offsets the potential savings of a low interest rate HELOC in reset mode. Would you rather apply 400 to 800 dollars extra each month to paying down your principal, or towards paying off a credit card with an interest rate of 15% or higher?
Another way to look at a HELOC reset mode monthly payment if one also has high interest rate credit card debt, multiply the HELOC interest rate by either 2.0, 2.5 or 3.0 to get a truer sense of what the HELOC interest rate charge actually is. OUCH!
A REHELOC is the answer. A new 10 year period of interest only HELOC payments would afford the homeowner a better opportunity to pay off their higher credit card interest rate cards. Unfortunately, REHELOC's don't officially exist, but they should.