Fixed Rate Loan Vs Variable Rate Loan

One of the biggest questions homeowners ask when deciding which type of home equity loan is right for them is “which is better, a fixed rate loan or variable rate loan?” The answer really depends on what your goals are for your equity. If you simply want to borrow more money to do a few projects around the house then you might not care which type of loan you get. However, if you want to make larger purchases such as a home, you will probably want to take a look at fixed rate loans first.

For example, you can guarantee you’ll be able to get a fixed rate loan by putting up collateral, and the lenders will then give you a lower interest rate. However, if you have a poor credit rating or no collateral, this option may not be available to you. This is because the lender has to take into consideration your past credit history before they figure out your loan interest rate. In addition, if your financial situation changes drastically you could end up with a much higher monthly payment than if you had simply taken out an unsecured loan.

On the other hand, if you plan on buying a home in the near future, then a fixed rate loan makes more sense. You can also get a lower rate loan if your credit is good, but this will depend on your ability to pay the loan back within the timeline specified by the lender. Variable rate loans tend to be more flexible and can be more easily adjusted if needed. Still, you could end up paying more in the long run.

There are advantages and disadvantages to both types of home equity loans. Before you decide on which one is right for your needs, it’s important to know how much equity you currently have versus how much you expect to have in the future. By knowing this information you will be able to determine whether a fixed rate loan is the best choice for you. If you have a lot of equity but little future income this may be the best route for you. Otherwise, a variable rate loan may be your best option.

If you have a lot of unused debt then a fixed rate loan makes more sense. This will allow you to lock in a low interest rate so you don’t have to worry about your payments going up. On the other hand, if you have little or no debt a variable rate loan makes more sense. By allowing you to adjust your loan rate up and down you can get your payments down to an effective rate. Of course, this may result in some people paying more in their interest payments because they have the flexibility to go up to a higher rate.

The type of loan you choose also depends on your budget and the amount of money you wish to borrow. If you need the smallest payment that offers the least amount of interest over the course of the loan than a fixed rate is the best option for you. However, if you have little to no debt and wish for larger payments you should use a variable rate. As you can see choosing the right type of loan will help you get the lowest possible interest rate along with the smallest overall payment you can manage.

The other factor to consider is what type of collateral you have available to secure the loan with. If you are unable to find a loan that offers the terms you want you may need to refinance to a variable rate loan with a fixed rate. You should not allow a fluctuating interest rate to keep you from being able to make your monthly payments. Once you start gaining some equity, you can refinance again until you find the right loan for your situation.

Fixed rate loans can be an excellent way to get the lowest possible rates, while still maintaining the stability of your budget. The biggest disadvantage of fixed rate loans however is the length of time you will have to pay them. Fixed rate loans also offer no flexibility regarding how the interest will be charged. You will pay the same rate for the entire life of the loan. This can be detrimental in the long run if you plan on needing loans for a long period of time.