For more articles on HELOCs
View these articles and more at
“ 3 Benefits of Technological Advances,”
Timothy R. Smith,
“DataDecoded: The Jenga rules of HELOC markets,”
“Finding the Key to Mitigate HELOC Risks,”
Allen H. Jones,
Mike Kinane is head of consumer lending for TD Bank.
With close to 30 years of banking experience, Kinane has
U.S. footprint-wide accountability for the bank’s consumer
lending businesses, including home-equity and personal-lending products. Based in Mount Laurel, New Jersey, Kinane
joined TD Bank in September 2005. He also is currently on
the advisory board for the National Federation of Credit
Counselors and the client advisory board for Equifax.
Reach him at firstname.lastname@example.org.
Rate Hike Calls for Reassurance
HELOC borrowers turn to originators for guidance on loans
By Mike Kinane
The Federal Reserve’s recent interest-rate increases—0.25percentage-pointincreases in December 2016 and again this past March — andthe 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
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.
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 exag-
gerates 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
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.
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. ■