Many lenders advertise a home equity line of credit with a low starting rate. The rate might be 3.99% for the first six or twelve months. Then it changes to a variable rate. That second rate is the one you'll live with.
Here's how to read the offer. A variable HELOC rate usually equals the prime rate plus a margin. After the promotion ends, you pay that. The prime rate is set by the market and changes over time, so the rate you see right now is only a snapshot. The margin is set in your contract. I explained why the margin is the only part you can negotiate in your HELOC rate is prime plus a margin. Two lenders can both advertise 3.99% and then land at very different rates after month twelve because their margins differ.
Put dollars on it. Say you carry an average of $20,000 on the line of credit. At 3.99% you'd pay about $800 a year. At 8.5% after the promotion, you'd pay about $1,700. The difference is about $900 a year. If your plan to pay off a chunk depends on the low rate, the savings will stop when the promotion does.
Check three other things. Does the promotional rate apply to the whole balance or just the first draw? Does the rate return to prime plus margin automatically, with no notice? And is there an early closure fee? Many lenders charge a fee if you close the line of credit within the first two or three years, which can wipe out the benefit of switching to a better lender. The fee sheet post lists the charges to look for.
For Dynamic Banking, the question that matters is what it costs to carry the line of credit over the long haul. I'd choose the lender with the lower margin and the cleaner fee sheet over the one with the flashiest first-year number. A bigger gap between your line of credit's rate and your debt's rate gives you more room. A rate that jumps by 4 or 5 points in month thirteen can turn a chunk that worked into one that doesn't. The stress test post shows how to check.
Ask for the margin, the cap on how high the rate can go, the early closure terms, and an example of the rate after the introductory period. Write them down for each lender you're comparing.