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For all of you that are smarter than me...and that means most of you ;-)
Should we go with a fixed rate home equity loan of 6.75 or a variable of 4.25? What are the advantages of going with the variable (if any). The variable is what they are pushing. thanks
What kind of term are you looking at or is this an open line of credit.
We are in a rising rate environment, so I'd look to see if there is a cap on the variable rate loan.
Also, if you are getting an open line, how disciplined are you in paying down your debt, so that you have none. I'm not asking this to be cute, only because there is a degree of uncertainty in our economy. If we go into another recession or market crash, its best to be debt free. Those without debt suffer the least.
I'm not saying don't do it, consumption drives our economy along. Send me a personal message if you want any detail on the variables.
Finally, the refinance market is drying up a bit so the mortgage lenders are going after home equity business. Its a buyers market. I wouldn't pay a dime in fees. <--- sorry Mishler
Rocketboy
Looking at 180 month term. We are very disciplined with our payments. No debt other than a mortgage right now. House has more equity than we owe on the mtg.
Yes you are disciplined if you have a mortgage and no other debt!
Without knowing the amount you are borrowing I'd explore the differences in your cost of funds and where you anticipate the prime rate moving to. As I indicated earlier, we are in a rising rate environment, which is a key monetary tool to keep inflation in check. My impression is that we will see continued increases over the next 8 quarters or more due to specific weaknesses in our economy.
So, if I was looking into my crystal ball, I'd bet we'd be at 200 bp above where we are now for a floor on variable rates, or 6.25%. If you go the term of the note, I'd anticipate they'd be higher than that, unless again if you have a cap.
On the tax front you may be able to get a deduction for the interest. If you want a consistent payment and don't mind additional interest expense on the front end the fixed rate may be the better choice. Currently the rate range for home equity loans is 3.99 to 10.92 with 6.61 being the average. With so many choices, I'd shop it and get the lowest fixed rate possible. Some banks will knock off a quarter point if you pay via direct debit.
Hopefully this helps a little - good luck with your quest.
Rocketboy