3 Reasons to Get a Fixed Home Equity Loan

A fixed home equity loan is a very popular tool to access the equity in your home. There are many different lenders out there that offer a fixed home equity loan product of some sort. While there are many different types of home equity loans out there, this one could be the most beneficial for you. Here are a few reasons that you should consider getting a fixed rate home equity loan.

1. Fixed Payment

One of the biggest advantages of using a fixed rate home equity loan is that you have a fixed monthly payment. When you are living on a budget, this is essential. Most of the time, those that need home equity funds are definitely living on a budget and can not afford a lot of variation in their monthly payments. Using a variable rate home equity loan will not afford you this luxury. It could potentially give you a different payment than what you previously thought you were paying. The payment could double in a few years and you are left trying to make it work. With a fixed payment, you know exactly what you are getting into and can plan for it. Planning ahead is the easiest way to make sure that you succeed financially.

2. Save on Interest

Most of the time, the total amount of interest that you pay over the course of a home equity loan is almost always smaller with a fixed rate loan. When you sign up for a variable rate, it is because the initial interest rate is lower. You see the monthly payment that you will be paying for the near future and it convinces you to gamble. However, the interest rate will rarely stay that low for an extended period of time. Interest rates fluctuate all the time and over the course of several years, there is a good chance that the interest rate will go up substantially from where it started out. This means that you will most likely be better off with a fixed rate that cannot go up when the prime interest rate does. 

3. Tax Advantages

Getting a home equity loan can be a big tax savings for you overall. When you have a fixed rate home equity loan, you can actually deduct the amount of money that you pay in interest every year. At the beginning of your loan, this will be the vast majority of your payment. Therefore, when you add all of that up over the course of the year, it will be a substantial amount. This deduction lowers your taxable income which could potentially put you into a lower tax bracket. 

In addition to deducting the interest, you can also deduct any points that the mortgage broker charges you. These points are a way to buy down your interest rate. Therefore, they can also be deducted from your taxable income at the end of the year.