Home Equity Loan
What does it mean to "lock" just a portion of a home equity line of credit?
I am new to home ownership.... and just got a $50,000 equity line of credit. They told me I could "lock" only a portion of it now (i.e. $40,000) and then call back at any time and lock another chunk. I asked her what she meant, but her answer went right over my head... Please explain in dummy terms what it means to "lock" $40K and why I want to do that? And do I want to call back and lock the rest? I am sooo confused. Thanks so much for any information anyone can provide!!
Public Comments
- interest rate on equity line of credit change monthly, so next month payment even you don't use any more money can be different because of that. locking a portion of the money you spend mean, that you will keep a fixed rate on this amount for certain time-call them up and ask how long. they will mostly charge you for that so ask them how much also.
- What they mean is you are locking in the current interest rate. Its probably a god idea to do this now, since interest rates are expected to rise. I would lock at in at least a portion of the line of credit. If yu dont lock in a rate you are subject to whatever the rates become... either higher or lower.
- Previous answers are correct in that locking means you freeze the interest rate. But along with that, you freeze your ability to use the line of credit. In your case, if you lock the $40,000, that $40,000 will convert from a line of credit to a term note (typically you'll have anywhere from 5-20 years to pay it back). But that's $40,000 you won't be able to draw against in the future. So say you lock the rate and then the next day you pay $20,000 on the loan. If you hadn't locked it, you could have borrowed $30,000 (it's a $50,000 line of credit and you paid off $20,000). But since you locked $40,000, and it (probably) converted to a term note, you can't borrow against the $20,000 you just paid off -- you can still only borrow the $10,000 (diff b/w $50,000 and $40,000). Your bank officer is the best person to explain the ins and outs, but the above is what I understand about your situation.
