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Funding-Strategy – Details

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5-Year Fixed-Rate Home Equity Loan at 2.49%

June 17, 2013

Fixed-rate home equity loans are increasing in popularity among consumers as the spring weather has enticed some people to move ahead with long delayed home improvements. Many of our members are booking these loans to the balance sheet, and are funding them with a mix of deposits and advances. Members can lock in a healthy spread while enhancing earnings by utilizing amortizing advances to fund a portion of the loan balance.

If rates rise, it is likely the prepayments would slow, thereby extending the average life of the mortgage. If rates fall, prepayments would likely accelerate, leaving excess funding to be reinvested at prevailing market rates. These strategies assume the rate changes ramp up evenly over the first 24 months, and then remain at that level for the remaining term.

Below are three examples of common funding scenarios for fixed-rate mortgages.

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