Although a home equity loan can be an inexpensive way to borrow money, it's smart to choose one with the best rates and terms. And, in today's market, a fixed-rate home equity loan may be your best choice. That's because Current Rates Are Rising By choosing a fixed-rate home equity loan, you essentially "lock in" the rate for the life of the loan. Interest rates are on the rise, which means each week--or even each day--the rate you'll get charged for your home equity loan may be increasing. By locking in the rate now with a fixed-rate loan, you'll never have to pay a higher rate (unless you refinance your loan). You Wont Be Tempted to Keep Buying To get a fixed rate, you have to choose the type of home equity loan that dishes the money out in one lump sum. Home equity lines of credit, on the other hand, allow you to dip into the account over and over again. The downside: home equity lines of credit are almost always adjustable-rate loans, which means your interest rate could increase over time. By choosing the fixed-rate home equity loan and getting your cash all at once, you won't be tempted to borrow from the account over and over again. Youll Know Exactly What Your Payments Will Be Since your interest rate is fixed and never changes over time, and since you can only borrow one lump sum, your payments will stay exactly the same during the life of the loan. That makes it easier for most folks to budget since they know how much they need to make their monthly payments. If you choose an adjustable-rate loan, on the other hand, your minimum monthly payment amount can fluctuate from month to month, making it much more difficult to manage your budget and finances. There are many advantages to a fixed-rate home equity loan, including consistent payment amounts and the ability to lock-in a low interest rate. In general, it's best to avoid an adjustable-rate loan unless the current interest rates are extraordinarily high, and experts predict they'll fall in the future. |
