Hello All - longtime lurker here, and finally ready to jump in (to both investing and the forums!)
Based on what I've learned on the podcast and here on BP, I've been shopping around for loans. We will be using around $90,000 from a HELOC. Regardless of which loan we choose, plan is to pay off the full amount within 5 years.
One lender is offering us a variable annual percentage rate of prime + 0.50, with no fees and an option to fix the rate on a drawn portion at 0.50% above the variable rate.
Another lender is offering 2.49% fixed for 12 months then convert to adjustable rate Prime + 1.0% OR 4.99% fixed for 36 months then convert to adjustable rate Prime + 1.0% OR 5.99% fixed for 60 months then convert to adjustable rate Prime + 1.0%. We pay appraisal cost of $700.
Can someone help me understand how to figure out how much we will pay in interest for each these two different product options? (If I know how to calculate one of the promotional offers, I can figure out how to calculate the others.)
I understand that we can't predict exactly how quickly the prime rate will go up over the next five years, and that changes in the rate could change the price of each loan significantly - what I'm looking for here is the formula that I can use to figure this out for several scenarios, and the thing that's throwing me off is not knowing how to calculate total costs under the scenario of a promotional rate that expires.
Thanks in advance!