The Advantages of a Fixed Rate Home Equity Loan

A fixed rate home equity loan is a very popular lending instrument that many homeowners have used. It allows you access to your equity funds when you need them. The funds can be used for any number of things as you see fit. Another popular home equity instrument is the variable rate home equity loan. When compared, the fixed rate home equity loan presents several advantages. Here are a few things to think about when considering the two home equity loan options. 

Fixed Interest

With a fixed rate home equity loan, you are getting the same interest rate throughout the loan. This gives you stability and you know exactly what you are going to spend. Over the course of several years, the interest that you pay will add up in a hurry. You are going to pay thousands of dollars in interest in most cases. Therefore, you need to make sure that you save yourself as much money as possible in interest. 

With a variable interest rate, you have no idea how much you are going to be paying interest over the life of your loan. This type of loan is similar to gambling. You are betting that the prime interest rate will stay low for the entire life of the loan. While it might do this, the odds are against you. Typically, the interest rate will fluctuate over the course of several years while you have your home equity loan. This can amount to you paying thousands of dollars more in interest than you would with a fixed rate loan. 

Fixed Payment

With a fixed rate home equity loan, you will be able to obtain a fixed monthly payment over the entire life of the loan. With a variable rate loan, you will also get a variable payment. This represents a lot of uncertainty with your potential monthly payment. Your payment might double by the time you have reached the end of your loan. Living on a budget makes it very hard to plan every month. When your monthly payments fluctuate by as much as a few hundred dollars, it can make the rest of your financial life very stressful. Having a low, fixed monthly payment every single month will make your life a lot easier. You can just plan for it every month and forget about it. Set it on automatic withdrawal if you want and you do not have to worry about being surprised. 

Stability

With a fixed rate home equity loan, you are giving yourself stability. You are getting a certain amount of money and paying it back over a certain amount of time. Your interest rate is fixed, your payment is fixed, and your repayment period is fixed. There is something to be said about stability and consistency in any aspect of your life. Without consistency, you never really know what to expect of the future. A fixed rate home equity loan can provide the stability that you have been looking for. 

 

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