Is A Fixed Rate Home Equity Loan The Best?

There are basically two main types of home equity loans - the fixed rate home equity loan and the adjustable rate home equity loan. The latter has rates that can vary from time to time, and in recent times it has been discovered that interest rate increase are on all time high, these adjustable rates increases frequently at an indeterminable frequency. But that is not the case with fixed rates, in this case, the rate remain unchangeable throughout the life time of the loan. This is definitely the better out of these two types of equity loan.

The fixed rate home equity loan is preferred because you know exactly the amount of money you are to repay from the beginning and this amount remains constant, that way, the amount of money you will payback every month also remains constant, unlike the variable rate of the other that makes it impossible to determine exactly what to repay monthly on a constant rate. With the fixed rate option you can strategize and plan your repayment program since you already know that the amount of money owed is not subject to incremental change - hence one is able to repay easily.

There is also a benefit of having a large amount of money to finance project, invest, consolidate debt etc. This is because the fixed rate home equity loan gives the whole amount of the loan (it is usually higher than the value of the house) fully in one payment. But, the adjustable rate home equity loan allows one to borrow small amounts on different installment. The fixed rate is better since you will have sufficient funds at your disposal for investment, instead of collecting little amounts that can easily be wasted.

Even though the interest rates of fixed home equity loans are higher than the variable ones, it is still better and preferred; because in the long run, you will end up saving money since you are able to lock-in the interest rate (i.e. the rate does not increase) throughout the period of the loan. When applying for this type of loan, choose the short term repayment plan; this way you will save more money than when it is a long term loan. This is because the summation of the interest rate throughout the term will be lower when it's a short term loan than when it is a long term loan.

For more information about Fixed Home Equity Loan, feel free to visit us at: http://www.about-home-equity-loans.com/article-1-Fixed-Home-Equity-Loans.html

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