or a line of credit as they call it, and then two years later inform you that it is changing your terms from a fixed rate of 7.99% to a variable rate based on the prime rate plus some other mathematical mumbo jumbo?
Can someone please explain how we would calculate our new variable rate?
the key is that you got a line of credit - in the fine print of all lines of credit the companies have right to adjust the terms of the line within changing market conditions. what is best to get is an installment loan. especially if you don't want to get any more money, just pay off the balance of what you owe. an installment loan is a fixed rate for a set period of time & the only way it can be changed at all - even the due date - is by refinancing the loan.
there has been some legislation passed that required companies to putt an exact date as a due date if your previous due date was set as the last day of the month (mostly credit unions do that) so most of them have changed the due date to either the 15th or 28th. but that is the only instance where i have seen an installment loan change anything.
to calculate your new variable rate. you need to know your spread. lets use round figures. for our expample - prime rate is month is 5%, your spread is 4%. so for this month your rate is (5+4) 9%. prime changes to 3%, (your spread will not change) your new rate is (3+4) 7%...
Find out your spread - find out the prime rate that they use as it could be from the libor index also.
If it was originally fixed rate forever (as you are saying), then if you read the notice carefully, it should say somewhere that you have the option to send a letter by a certain date saying that refuse to accept the change, and that if you send such a letter, then you will no longer have a line of credit available to you (you will not be able to borrow more), but you will be allowed to pay off the existing balance under the original terms (fixed rate), instead of the new terms (variable rate).
If, as some of the other answers suggest, the original agreement said that it would be fixed for a certain time and then become variable, then they are simply reminding you of that, and are not changing anything.
Line of credit is only fixed for a certain period of time. It is a revolving account so they can't allocate the money indefinately. They have no way of knowing what it will cost to borrow the money in the future. It works like a credit card but is a lot cheaper because it is secured.
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Then you do not have a true fixed-rate loan. You only had a fixed rate for a limited period of time. Reread the loan documents.
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