Fixed Home Equity Loan Can Save Over The Life Of The Loan
There are arguments both for an against taking out a fixed home equity loan, but in a tight credit market, the proponents for the fixed rate win every time. During time of easy credit and low rates, many people took advantage of adjustable rate mortgages, allowing them to purchase a home based on a low interest rate. As long as the rate remained stable, they enjoyed the fruits of their labor. However, when the prime interest rates began to rise, so did the interest on their home loan as well as the monthly payments.
Since the payments are established based on a set interest rate and a total amount spread over a specified amount of time, there is only one variable that can be changed during a market fluctuation...the interest rate. The monthly payments will be changed to meet the new total due over the life of the loan, something that does not happen with a fixed home equity loan.
Persons who borrowed on their home equity with an adjustable rate, may find that even a modest increase in the prime rate can translate into a significant increase in their monthly payments. That one variable not included in a fixed home equity loan can create a lot of financial stress for homeowners and their families.
Fixed Rates Mean Nothing Open To Change
Although the interest rates commanded by a fixed home equity loan may be higher than that offered with adjustable rates, it is a gamble that many homeowners are willing to take. If the rates go up they win, because the cost of their loan is fixed, unaffected by the rate variation. If the rates fall, then they will spend more money for their loan than had they used an adjustable rate, but it is a chance most are willing to take.
After watching friends and reading about many others who may have lost their homes due to an escalation in interest rates, adjustable rate loans are not quite as attractive to as many homeowners, especially those seeking a home equity loan. Especially if their primary mortgage has a fixed rate, failure to take out a fixed home equity loan could result in payments going so high they end up losing their home through default.
While many lenders will push adjustable rate loans, not necessarily hoping the rates increase, they stand to gain a windfall if the rates do increase. A fixed home equity loan allows the homeowner to accurately budget their finances and not worry about an escalation in their loan payment.
Since the payments are established based on a set interest rate and a total amount spread over a specified amount of time, there is only one variable that can be changed during a market fluctuation...the interest rate. The monthly payments will be changed to meet the new total due over the life of the loan, something that does not happen with a fixed home equity loan.
Persons who borrowed on their home equity with an adjustable rate, may find that even a modest increase in the prime rate can translate into a significant increase in their monthly payments. That one variable not included in a fixed home equity loan can create a lot of financial stress for homeowners and their families.
Fixed Rates Mean Nothing Open To Change
Although the interest rates commanded by a fixed home equity loan may be higher than that offered with adjustable rates, it is a gamble that many homeowners are willing to take. If the rates go up they win, because the cost of their loan is fixed, unaffected by the rate variation. If the rates fall, then they will spend more money for their loan than had they used an adjustable rate, but it is a chance most are willing to take.
After watching friends and reading about many others who may have lost their homes due to an escalation in interest rates, adjustable rate loans are not quite as attractive to as many homeowners, especially those seeking a home equity loan. Especially if their primary mortgage has a fixed rate, failure to take out a fixed home equity loan could result in payments going so high they end up losing their home through default.
While many lenders will push adjustable rate loans, not necessarily hoping the rates increase, they stand to gain a windfall if the rates do increase. A fixed home equity loan allows the homeowner to accurately budget their finances and not worry about an escalation in their loan payment.
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