Home Equity Line of Credit vs Loan

Does anyone know anything about these? We are considering taking one out to pay off my car loan-- we got a really high rate on my new car loan and the equity rates are down aroun 4% but my confusion comes in with the variable rate--
Any help ?
For instance say I take out a line of credit for $25,000 at 4.25% and pay it back over a certain number of years--say 3 years--does the rate stay at 4.25% since I took it out all at once? or will it change?
Ugh
Help
Laura

Re: Home Equity Line of Credit vs Loan

We are also looking into a home equity line of credit instead of a loan. A loan you must draw the whole amount out at one time and the rate is fixed. With a line of credit, you draw out what you need at the time and your balance is what dictates how much your monthy payment is. The line of credit is usually tied to prime, so your amt over prime will remain constant but if prime goes up so will your total interest rate.

So now prime is 4.25% and we were quoted .25% over prime. so our interest rate would be 4.5% until prime goes up or down!

I hope that helps!

Lisa

Re: Home Equity Line of Credit vs Loan

Lisa
That def helps--and pretty much what I understood but now my question/concern--how high can/will prime go--I know it says 18% but how much of a risk is it? We hope to pay off the car in 3 years vs the 5 year loan I have now nad the LOC def seems better because the rate is sooo much better than the loan--but of course I am concerned with the variable rate--ugh!!!

Re: Home Equity Line of Credit vs Loan

I do not think that prime will climb that high that fast (if it ever does) If anyone really knew that they would be rich.
What is the rate of the fixed loan that you were quoted and what was the line of credit rate?

Re: Home Equity Line of Credit vs Loan

From what I have found--LOC is 4.25 and loan is between 6 and 8%.
One other thing though--- the loan looks like it has to be for at least 10 years--which we def dont want-- our goal is to get rid of car payment sooner not later--

Re: Home Equity Line of Credit vs Loan

With most banks you have to kep the line of credit open for 2 years to avoid closing costs. And after 2 years you can pay it off and close it up. I work for a bank we do alot of these. Let me know if you have any other questions.

Re: Home Equity Line of Credit vs Loan

so with the LOC once the intro rate is over that's it right--so if you look at above scenario if we take the 3 years to pay it off--each months payment is based on whatever prime + is---
So we can start at 4.25 and by the end be at say 6.25 or higher/lower---
I think I got it
I was in a wedding at Riviera---the pics on the grounds came out beautiful!!!

Re: Home Equity Line of Credit vs Loan

Another thing to consider is that the interest paid on a Home Equity Line may be tax deductable, which also has value to you. (Check with your accountant to be sure! I'm not one!)

Re: Home Equity Line of Credit vs Loan

Thanks Laura, Valenia has a great point also about the tax deduction (I completely forgot about that)