Following multiple interest rate hikes from the Federal Reserve, banks have been able to limit increases in deposit costs, and mortgage rates have not moved significantly. However, borrowers with home equity lines of credit, or HELOCs, are seeing higher bills.
As of Jan. 5, the average HELOC rate among all commercial banks, savings banks and savings and loan associations increased 43 basis points from the prior-year period. Over those 12 months, the Federal Reserve increased its target federal funds rate three times with each increase coming in at 25 basis points. But mortgage rates have not moved much: The average rate for 15-year fixed-rate mortgages increased just 5 basis points, and the average rate for 30-year fixed-rate mortgages actually decreased by 8 basis points.
"What's driving HELOC rates higher has been the activity at the Fed. It's tied very closely to the prime rate, so every time the Fed bumps the overnight rate, banks pass along the increase," said Greg McBride, chief financial analyst for Bankrate.com.

The largest banks have been the most aggressive in passing along the rate increases to HELOC borrowers. At banks with more than $10 billion in assets, the average HELOC rate as of Jan. 5 increased 73 basis points from the year-ago period. That nearly matched the 75-basis-point increase in the prime rate over that time. At smaller banks, the increase was less pronounced. For banks with $1 billion to $5 billion in assets, the average HELOC rate was up 51 basis points from a year earlier. And at banks with less than $500 million in assets, the year-over-year increase was just 35 basis points.

In aggregate, banks continue to allow HELOCs to run off, a long-running trend since the 2008 financial crisis. In the 2017 third quarter, the most recent quarter with industry-wide data, HELOCs and junior mortgage liens declined 7.7% from the prior-year period and 1.7% from the 2017 second quarter.
Bank of America Corp. reported the most HELOCs in the 2017 third quarter with $59.50 billion, representing 6.1% of total loans. Other mortgage giants were not far behind as Wells Fargo & Co. reported $55.1 billion of such loans and JPMorgan Chase & Co reported $43.6 billion of HELOCs. No other bank reported more than $20 billion of HELOCs.
Mortgage experts expect further HELOC rate increases through 2018 as the Federal Reserve is expected to implement additional rate hikes. But the trajectory of 15-year and 30-year mortgage rates will depend more on trading in the Treasury market, said Michael Fratantoni, chief economist for the Mortgage Bankers Association. That also explains why mortgage rates have yet to show significant movement.
"Broadly, we've seen a flattening of the yield curve, so any long-term instruments are not increasing as quickly," Fratantoni said.
By year-end, the Mortgage Bankers Association expects the 30-year mortgage rate to be close to 5%, coming in at an average of 4.5% for the full year. Bankrate.com's McBride does not see as much of an increase, predicting that the 30-year rate will end the year at 4.5%.
"I think it's going to be a very volatile year for the bond market and the mortgage market in particular," McBride said. "Concerns about inflation and a faster pace of inflation will be the catalyst that pushes rates higher, but we will also see one or two windows where rates are falling dramatically either because of geopolitical concerns, a stock market correction — something that fuels nervousness in the market."


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