I’ve gotten a variable rate loan HELOC before but I do it so infrequently and the products change from time to time. I have one I’m closing on now, but I still don’t understand how the rate is calculated. I have to ask the loan officer tomorrow, but I thought I would bring it up here.
So this is how the rate is calculated for the current loan:
Prime (4.25) x the margin (-0.260) = APR (3.990)
Okay, so it’s variable. In the past, that meant that when prime changes, they recalculate. But this time, they’re saying that not only can prime change, but the margin can also change.
I was like huh?
With prior loans, it’s always just been prime that is the, uh, variable in the variable rate. Also, I’ve never had a variable rate that had a negative value before. Usually it’s been like 1 point over prime or something. If prime was 4.25, and the rate was 1 point, then the APR was 5.25. If prime went up, then the APR went up too, by the same amount (1 point).
With this one, it’s got this margin thing, which it says is “based on my Loan-to-Value”. Okay, that makes sense. The bank had different margins based on different LTV. There were like 3 or 4 rates and we strategically picked our loan amount to get the lowest rate.
It says in the small print that the both the index and the margin can change. I think that means that if the market changes, and the house is suddenly, say, worth less than it was at calculation time, than the margin can change. At least, I think that’s what it means. I couldn’t get a straight answer from the clerk I worked with tonight. He was just a low level guy, so he probably just didn’t know. But I didn’t even realize the margin could change until I read the thing tonight. I don’t see a list of the rates and their associated LTVs in the signing papers though, so maybe I’m just totally off base here. The way the kid explained it the margin was just determined by the “board” or some such other black box arrangement that doesn’t involve, like, numbers or fancy equations with symbols and stuff.
So I don’t know.
I really need the HELOC right now and I don’t want a fixed rate product, so I’m probably going to not going send it back, but Jesus. What a pain. There was another clerk with braces at the bank tonight and she kept repeating “Sir. Sir, we can’t know what prime will be.”
In my head I was like, Fuck!
I was cool though.
I just sighed and said, “Yeah. Yeah. We can’t know that.”