Frank Collins

Fixed Rate Equity Loan is Perfect When Rates are Low

It is good to get a fixed rate loan during periods of federal reserve easing and especially so when their is a temporary economic downturn.

There are pros and cons when it comes to fixed rate home equity loans. However, in a strict credit crisis with extremely low interest rates, a fixed rate home equity loan is the best choice. The reasons are as the prime rate index goes up, so does the rate on your fixed home loan plus the monthly payments.

People who borrow in tight credit market eras on their home equity with an adjustable rate, may come to find out that even a slight rise in the prime can become a hefty increase in their monthly payments. An unknown aspect omitted from the fixed rate equity loan could create lots of financial angst for owners and their families.

Some equity lenders require the borrower at the end of the period to make a “balloon payment”. This means a large, lump-sum payment, is required to close the loan out or you will need to refinance.
A fixed rate equity loan means there is nothing that can change as far as payment is concerned. Although the interest rates for a fixed rate home loan are probably higher than a variable rate, it is a calculated risk that a many borrowers are willing to take. If the interest rates go up they win, because their mortgage is fixed, unchanged by the market conditions or unexpected swings. This is especially important since we are in a global economy and any crisis international or domestic could make uncertainty. 

Many people who have had foreclosures are the ones with adjustable rate loans. Nowadays, those slightly lower rates are not as attractive to as many homeowners, in particular those looking for a second loan or home equity loan. It is more important than ever to get a fixed rate loan since rates are at their lowest. So, more than likely rates will be moving up next time around by the Federal Reserve.  By forgetting to ask for a conservative home equity loan, it could result in payments becoming higher, and the end result is losing your home by default.

While many lenders and brokers will brag all about the benefits of adjustable rate loans, and not necessarily have one themselves, their objective is to sell you a product as it perceived to be better from its face value but intrinsically it is very risky. A fixed rate home equity loan allows the homeowner to have a detailed and specific budget on their income and not be anxious about the possibility of a higher payment.

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