Home Equity LoC with Variable APR?

[BlondeSpiders]

Hi folks,

We are looking for a loan through our credit union to consolidate bills and have a little extra for some home renovations. We've been trying to decide between a line of credit or straight up loan. The LoC has a variable APR of 5.34%, while the loan has a fixed rate (I'm not sure what that rate is right now.) 

Would you feel comfortable committing to a variable APR when we are looking at a possible recession? I'm a first time home buyer so this is all a little new to me, and I'm not sure I'm asking our processor the right questions.

TIA!

[simpsongal]

It's not a great idea to pay other debts w/debt secured by your house. You also can't deduct the interest on the equity loan from your income taxes if you use it for something other than home improvements.

As for which loan to take for home improvements, 5.34% is a pretty high starting point for a variable HELOC. We have a variable rate HELOC that we're trying to pay down as interest rates climb - the current rate is probably around 3.5% (started in the 2s). I know it's probably not what you want to hear, but I'd probably focus on paying down the bills and saving for the home improvements unless they're absolutely essential.

Is there another place you could free up cash in your budget?

[gt7301b]

I'll also answer the question that you didn't ask first.  I would try and pay down the debts without taking out an additional loan instead of using the equity in your house.  Unless you make changes in your life style to eliminate the practices that got you into debt you are likely to go back into debt.

To answer your other question I would want a fixed rates in these times.  The Fed has indicated that they are going to be very aggressive with raising rates.  We just locked in a loan rate for the very same reason.  5.34% seems high, if you look around you may be able to find better rates.

[dochas]

We have a HELOC that we got for household emergencies/projects. There's a 7 year draw period that's about to close for the second time, so we've had it for 14 years. This is the first time interest rates have started rising, so no, I would not recommend variable now. We have a balance right now that we're about to convert to a loan so we can lock the interest rate in.

As others have said - we have never used this for anything other than a house-related emergency or a project that we wanted to complete fast but had a plan for paying off. I would never use it to consolidate debt. I have never known anyone to take equity out of their house to pay off consumer debt who didn't run it up again.

[BlondeSpiders]

Thanks for your advice everyone! I think we're going to hold off.