Should I Get a Home Equity Mortgage With a Fixed or Adjustable Rate?
By David W. Johnson
Deciding to get a home equity loan is easy. Deciding what kind of loan can look a lot more complicated. There is no reason to worry. Believe it or not, it is easier than you think - once you know the basics.
Home equity loans are a popular way of borrowing against the equity in your home without refinancing your existing loan. Since the loans are secured by your home, lower interest rates are often a result.
Sure, the choices of how to use the money are unlimited (and can be exciting). Home equity loans are attractive for those that want to do home improvements, use the money for investments or pay off those irritating higher-interest credit card balances or consumer loans. Also, ask your lender about the tax benefits of a home equity loan. But the choices of which kind of loan are more limited. It really comes down to two options: a fixed rate loan or an adjustable rate loan.
Which loan is right for you?
"At the beginning, lots of consumers are excited about getting a home equity loan or line of credit," says Thor George, a Southern California loan consultant who has successfully walked hundreds of applicants through the process. "But first, do some homework so you will understand the basic differences between the two loan products, and be aware of the variables that can affect the loan's approval."
Some consumers like the stability of the more traditional FIXED RATE LOAN. It's the most plain and simple loan product available - and it's considered the "conservative" choice. As its name implies, a fixed rate loan has an interest rate that is fixed for the term of the loan. The payments on the loan are also fixed at one amount. For example, if you take out a 30-year fixed mortgage and the payments are $900 a month, then you are going to pay that $900 per month for the life of the loan. Other consumers like the flexibility of an ADJUSTABLE RATE LOAN (also known as an adjustable rate mortgage or "ARM"). This is an "aggressive" loan in which the interest rate is adjusted periodically based on a pre-selected index. The time between the interest changes can vary, but it is usually annually.
"A home equity credit line can be great in an emergency or to use as an investment vehicle," George says. "And best of all, you only pay on what you borrow. Later on, consumers also have the option of converting their adjustable rate loan into a fixed loan." "When Your Home is on the Line." Accessed online at federalreserve.gov/pubs/HomeLine/
Nationwide Mortgage Loans Offers a Convertible Home Equity Line of Credit with Options to Refinance Portions to a Fixed Rate Second Mortgage Loan
Nationwide Mortgage Loans now offers a convertible home equity line of credit that provides borrowers options for turning their variable interest rates to a fixed rate second mortgage loan. This unique home equity program allows homeowners to convert portions of their adjustable rate equity line into fixed rate home equity loans. Another key feature is that this second mortgage allows you to keep the unused portion of the home equity line open.
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