Borrowing 200000-should I get a loan for 6.0% fixed 15 year, OR should I get a credit line for 1 point above prime when I won't be borrowing the entire amount for about 4-5 months. Will I save more with theCL since I pay less interest at first?
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ANSWERS: 2
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you will save more money with the HELOC...but be careful with prepayment penalties on the HELOC. with a mortgage they will charge you closing costs that can range to 3% of the loan amount. HELOCs are free with some lenders....but have a higher rate. You may not be able to take that amount out if you dont have a sufficient LTV. http://carolinahomerates.com
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This is mostly personal opinion but I think it has some valid reasoning behind it. I would get the fixed-rate loan. We live in uncertain economic times and it's difficult to predict where interest rates will go in the next 10-15 years. http://www.salon.com/tech/htww/2007/11/28/foreign_captal_inflows/index.html I personally would prefer to know that my payments won't vary if interest rates skyrocket. If you are not using the entire amount immediately, put the money that you're not spending into a low-risk investment and you'll minimize the capital cost (e.g. borrow at 6%, put in CD paying 5.25%. Net cost of capital is 0.75%). Good luck.
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