Where to shop for a HELOC now that “teaser-rates” are not so “teasy”
By John H. Robinson, Financial Planner (May 27, 2024)
In the course of my financial planning reviews, I often encourage clients to establish a home equity line of credit as a ready source of liquidity/emergency reserves. HELOCs typically cost little or nothing to establish and you do not pay any interest until you actually use the money.
Teaser Rates
A key element of this recommendation has been to take advantage of low promotional “teaser rates” that banks often offer to entice banking customers to borrow. The teaser rates are typically fixed for 1-5 years, after which time the rate will reset to a variable market-based rate that is usually much higher than the original teaser rate. Penalties for termination before the end of the fixed-rate period are intended to keep borrowers from hopping to a better teaser rate in the future. However, there is usually no penalty to terminate the HELOC after the end of the fixed rate period.
Over the past 20+ years I have tapped into my HELOC twice to help fund home renovations. Over this time, I have hopped from bank to bank each time the initial fixed rate promotional expired. I have had HELOCs at the four largest banks in Hawaii – Bank of Hawaii, American Savings, Central Pacific Bank, and First Hawaiian Bank. My most recent line of credit – a 2.99% 3-year teaser rate I nabbed in May 2021 has just expired. As expected, the current market rate on the HELOC, if I were to borrow, is much higher – 10.14%. Since I have no balance, I have just terminated it.
HELOC Sticker Shock
A review of the current teaser rates (as of 5/27/2024) at the aforementioned banks finds suggests that my teaser rate-hopping strategy may have run its course.
| Bank | Current Fixed Promo Rate | Current Fixed Rate Period |
| Bank of Hawaii | 7.25%-6.60% | 2-5 years |
| First Hawaiian Bank | 7.50%-7.65% | 2-5 years |
| American Savings Bank | 7.50%-8.50% | 0-5 years |
| Central Pacific Bank | 7.25%-7.60% | 2-5 years |
As you can see, the current teaser rates are still better than the current variable rate, and are certainly better than most credit card rates. However, these teaser rates are now higher than standard fixed rates for conventional mortgages, which are running in the 5.5-6.5% range for 15-years and 6.5-7% for 30 years.
If you have a balance on a HELOC with an expiring teaser rate, one option may be to bite the bullet and hop to a new teaser rate and then accelerate your repayment. If you do not have a mortgage, another option might be to secure a fixed rate mortgage to pay off your HELOC.
Where to Shop for Better Rates – Credit Unions
However, a third option – and one that is often overlooked by consumers – is to cast your net wider by shopping rates a local credit unions. For instance, a client who is seeking short term financing to cover the cost of a solar installation recently found 1-3 year HELOC rates at 4.0-5.0% offered by Hawaiian Electric Federal Credit Union.
Instead of using an open standing line of credit, in the current high interest rate environment, consumers with a specific short-term funding need, such as a car purchase, tuition, or debt consolidation, may also do well to consider fixed installment loans through the credit union. Fixed rates on these loans may still be as low 2.5%-5% range at some credit unions.
A limitation, of course, is that you must meet the eligibility criteria to join the credit union. However, many credit unions have broad geographic or avocational membership requirements. As you can see from the Hawaiian Electric CU example, the rate differential relative to bank rates may be substantial. It may take a little more time and effort to survey the universe of credit unions that are within your reach, but every 1% interest savings is guaranteed extra money that stays in your pocket.
John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru.
