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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2017

Rate Hike Calls for Reassurance

HELOC borrowers turn to originators for guidance on loans

The Federal Reserve’s recent interest-rate increases — 0.25 percentage-point increases in December 2016 and again this past March — and the high likelihood of future increases on the horizon may not seem like a drastic change in the short term, but it has left many existing and potential home equity line of credit (HELOC) borrowers with questions.

The increases are a positive reflection of the Federal Reserve’s growing confidence in the health of the U.S. economy and job market, but most borrowers hear that rates are rising and worry about how it impacts them. As a result, many turn to their bank or mortgage originator to find out what their options are right now, and what the new rate environment will mean for their existing or future loans.

For many mortgage bankers and originators, now is the perfect time to help guide borrowers. Proactively reaching out to offer advice and clarification on how rate increases will impact their loans helps to build trust and paves the way for a long-lasting relationship. In the wake of an interest rate hike, transparency is key.

Payment concerns

Any change to a monthly payment can cause alarm for some HELOC borrowers. Why is it changing? How much will it change? Can I afford it? In fact, the Home Equity Sentiment Index published by TD Bank this past March found that 46 percent of respondents ranked interest rates as the most influential factor when deciding on a HELOC, almost three times more than the 18 percent who chose loan amount as the most important factor.

When interest rates increase, it is important to reach out to borrowers and offer clarification and direction on the next steps. Explain that the rate increase likely won’t break the family budget, but it will cause a slight increase in their monthly payments, so they should plan accordingly. Originators who take the time to proactively address this concern will positively influence the trust factor with their borrowers.

Talk in dollars and cents. Get specific about how much of an increase borrowers should expect. Remind them that if their HELOC is built on interest-only payments for the first 10 years, a rate increase of 0.25 percent will have a minimal effect on their monthly payments.

Instill confidence in borrowers, and it will carry over when they’re considering whether to take out another loan with the same bank or mortgage company, or look elsewhere. Borrowers should have a clear picture of how the rate increase will impact their bottom line and feel comfortable with it before hanging up the phone or leaving the originator’s office.

Borrower options

It also is important to not only walk borrowers through what the interest-rate change means and how it will impact their loans, but to help them understand the broader advantages of smart borrowing. The Home Equity Sentiment survey found that nearly one-third (32 percent) of HELOC users said they lack confidence in their knowledge of HELOC loans and how to use them. Another 30 percent stated they were only somewhat confident. There is definitely a knowledge gap among HELOC borrowers about how to best use their loan, and a change to the Fed rate only exaggerates that gap.

Banks and mortgage originators have an opportunity to bridge that knowledge gap for their borrowers and provide advice that can’t be found in an online search. The most loyal customers are those who feel comfortable with their loan — who know what they’re paying and why. Those who are concerned about fluctuating interest rates want to know what option, if any, makes the most sense for their unique financial needs.

Originators should discuss whether refinancing a borrower’s current variable-interest-rate HELOC into a new, hybrid HELOC, with a fixed rate for a portion of the term, is the best choice. If that’s not a good fit, take the time to explain the differences between HELOCs and home equity loan offerings.

Every HELOC was taken out for a unique reason, so there is no one-size-fits-all loan product when it comes to figuring out a particular borrower’s next best step. If there are any surprises when it comes time for borrowers to make their monthly payments, it can make those borrowers feel uneasy, which can jeopardize the potential for a long-lasting relationship.

Building loyalty

In any rate environment, borrowers look to their mortgage professional for guidance and advice, but they may be hesitant to pick up the phone or come in for a meeting. This can be especially true for borrowers with questions about how to manage their HELOCs.

Use the recent rate increases as an opportunity to reach out to borrowers and ask if they have questions or concerns about their loans. Take the time to remind them of the many ways they can use their HELOCs, like remodeling or improving their homes, making downpayments on new cars or paying off student loans.

With home values increasing around the country, now also is a good time to alert borrowers to any recent increases in their home equity and suggest how to take advantage of that equity through a HELOC refinance. The point is to be proactive and reach out to borrowers during times of uncertainty. They will appreciate the effort, especially if they already had concerns they wanted to discuss.

•  •  •

For those borrowers who are considering opening a HELOC, originators have an opportunity to explain why the rate hike shouldn’t discourage them from taking out a loan. The fact is that the interest-rate environment is still historically low, and now is a good time to revisit their financial needs and discuss their loan options with a mortgage professional. Being transparent and upfront with borrowers during a time of doubt and concern can build long-lasting trust. 


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