How Is the Rate Determined for a Home Equity Line of Credit?

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The rate for a home equity line of credit is generally based on the prime lending rate. Find out how prime rates can increase or decrease on a loan with help from a financial specialist in this free video on home loans and money management.

Part of the Video Series: Home Equity Lines of Credit
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Video Transcript

Hi, my name is Matt McKillen, with Innovative Financial Group. The question posed to me today is how is the rate determined on my home equity line of credit? Well, your home equity line of credit is generally based on the prime lending rate. The prime lending rate is a rate that all banks in The United States use, and generally, the way that's determined is that the Fed lends money to banks at a lower rate; generally three percent below the prime rate, and the differences when they calculate the prime rate is what the bank's margin or profit is on the home equity line. So, as prime decreases or increases on your loan; which, it can fluctuate from month to month, sometimes every three to six months, it will also affect what your rate will be on your mortgage or your home equity loan with the bank. Generally, there is a rate cap on home equity loans that is very high. Most banks set those up in the seventeen, eighteen percent range, but right now in today's market banks are offering home equity lines in the three to four percent range, so it still is a very good, viable tool to use whether it be to consolidate debts, or do home improvements. But, the the way that your rate is determined on your home equity line is determined by the federal prime rate. Thanks again. My name is Matt. I'm with Innovative Financial Group.

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