I have a modest condo in super expensive bay area with fixed 30-year loan. Since its valuation went up since i bought, I decided to tap and get a 15year home equity loan. I am working with 3 diffeerent vendors to select from but one of them are only offering at variable rate with prime rate+1%. This one is currently much lower than the fixed rate I am getting at other two 5-7% because I see current prime rate is about 3.25% + 1 % which would amount to around 4.25%. I know this bears some risk if the economy improves a lot during next few years. I always shied away from variable rate in the past especially for my mortgage but since this is a much lower amount (20k$) and home equity loan, I am going to say I can manage it. Previously I never paid attnetion to how prime rate works and because of this offer, I am paying some attention to it. It seems like prime rate increase when economy is heated up and decrease by fed as a means of encouraging borrowing. I also looked at post 1955 graph and prime rate went up as much as 20% during 1980 (which must be a good time) and steadily been falling since. So I am kinda pondering of this option, in case if rate shoots up, I will have to make up some plan about how to mitigate. My question is how is likely the prime rate will go up next few years and what is the most factors affecting prime rate? IMHO, I think it is unemployment, inflation, an housing market, and overall business environment? Thanks!
Most people take fixed...... I think taking floating with no locked in at this point is okay. You can always jump to a fixed rate with lock in when the fed raises.