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Advice on Adjustable Rate Home Equity Loan

Which is better: a fixed rate home equity line of credit or an adjustable rate HELOC?

We just signed for a home equity line of credit for 30,000.00. $10,000.00 is for a wood stove already purchased. The rest of the money is for a shed to be built on our land. The shed estimate just came in at $40,000.00. I am not that comfortable putting that much expense on a home equity line of credit with a variable rate. I am wondering should we have picked the higher interest rate and got a closed end home equity loan? I have three days to cancel the open end line. If I do cancel does that hurt my credit rating? Thank you..

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Bill's Answer
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Frequently, adjustable rate mortgages and HELOCs carry pre-payment penalties that could cost you a lot of additional money if and when you want to pay off the loan. While standard mortgages can contain pre-payment penalties, they are far less common in conventional, fixed rate mortgage loans than in HELOCs and ARMs. If indeed your current home equity line has an adjustable rate, then I suggest you try to convert it to a close ended home equity loan/second mortgage. Speak to your current lender to see what your options might be. If you do end up cancelling, it is not going to hurt your credit per se, but a new inquiry for a different loan will affect it to a certain degree.

Regardless of which loan type you are inclined towards, it is imperative that you shop around with several different lenders and brokers to find the best deal possible. By speaking with different lenders, she will be able to compare the interest rates and loan terms being offered to determine which type of loan, and with lender, will best suit her needs.

If your submit your contact information in the Savings Center, we can have several pre-screened lenders contact you to discuss your options. offers a wealth of information about both home equity lines of credit, as well as conventional mortgage loans. I invite you to explore our website to educate yourself about the loan options available to you.

I hope the information provided helps you Find. Learn Save.



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