Lesson 8 of 25 · 7 min
Why a policy-rate rise reaches a home equity line within weeks and an ARM only at its reset
A home equity line reprices with the policy rate; an ARM waits for the date it already wrote.
A policy-rate move does not arrive at every facility on the same day. Track 12 lesson 1 is how a policy rate reaches the one market it directly sets, and then everything downstream. Track 12 lesson 7 is reset cadence: you are charged at the rate your agreement last looked up. This lesson does not re-teach that transmission. It puts two housing products on two clocks.
Kestrel Home Finance's home equity line, a second claim on the house, is $36,400 fully drawn at 6.80 percent. Monthly interest is $36,400 × 0.0680 ÷ 12 = $206.27. After a +0.75 point policy move the line is 7.55 percent the following cycle: $36,400 × 0.0755 ÷ 12 = $229.02. The extra cash is $22.75 in one month. The line repriced because it is typically variable and, in the sense Track 5 lesson 1 teaches, payable on demand: the rate is not waiting for month 60.
The ARM on $248,900 stays at 5.40 percent until month 60. Its payment stays $1,397.65 through the same policy move. The index may already have printed a higher figure. The agreement has not yet looked it up. Cadence, Track 12 lesson 7, is the whole difference. One facility looks up often. One looks up on a date it wrote years earlier.
Track 5 lesson 1's payable-on-demand clock is the securities-backed version of the line's speed. The ARM is the scheduled version. Same house, two claims, two clocks. A policy move of three-quarters of a point is one event in the overnight market and two different arrivals in the household's cash.
The policy move is one number. The home equity line takes it on the next cycle. The ARM takes it on the date it wrote. Cadence is the gap.
Key terms
- Home equity line
- A revolving claim on the house, typically variable. It reprices with the index, not on a five-year window.
- Reset cadence
- How often the agreement looks up the rate. Track 12 lesson 7's question, applied here to a line versus an ARM.
- Following cycle
- The next billing period after a policy move, on a facility that reprices without waiting for an anniversary.
Worked example
One policy move, two arrivals
Kestrel Home Finance. Home equity line $36,400 fully drawn at 6.80 percent. ARM on $248,900 at 5.40 percent, 47 months into a 60-month window. Policy move +0.75 points.
- Line interest, before
- $206.27
- Line interest, following cycle
- $229.02
- Extra on the line
- $22.75
- ARM payment, same month
- $1,397.65
$36,400 × 0.0680 ÷ 12.
$36,400 × 0.0755 ÷ 12.
One month, one cycle.
Still 5.40 percent. Month 60 has not arrived.
Three-quarters of a point reached $36,400 within weeks and did not reach $248,900 at all, yet. The clocks differ.
Check yourself
A home equity line of $48,600 fully drawn was 7.20 percent. After a +0.75 point policy move it is 7.95 percent the following cycle. What is monthly interest before and after, and does a 5/1 ARM at month 20 reprice on that same cycle?
A home equity line reprices like a demand facility; an ARM reprices on a calendar. That is Track 5 lesson 1's payable-on-demand clock versus a scheduled reset. Open Term one: the line is payable on demand →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.