THE SCENARIO
A friend of mine has a Home Equity Line of Credit (HELOC) that she got nearly 10 years ago. For those 10 years, the loan has been interest only, and the rate is Prime minus 1%.
Most HELOCs are 'adjustable', which means that their interest rate changes over time. Adjustable loans are generally tied to an 'index', such as Prime, COFI (Cost of Funds Index), or LIBOR (London Interbank Offered Rate), and generally have some spread, which is the amount above or below the index the charged rate will be. My friend's loan is tied to Prime, and the spread is -1 percentage point. So if Prime is 4% in a given month, my friend's loan will be at 3% interest for that month.
This HELOC is a bit different than other loans I've run across, in that after the 10-year interest-only period, it switches to a 10-year straight-line amortiza...
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