| What determines the interest rate on a variable? |
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Kiaser
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| What determines the interest rate on a variable? |
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What exactly does a variable interest rate key on? It's an index but where does that come from?
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Fri Apr 14, 2006 6:08 pm |
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Kiaser
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Cash: $ 43.05
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So essentially would it be possible to invest in these same funds with an amount equal to that of your mortgage principal, and in turn offset any raises in your mortgage interest rate if you had a variable interest rate?
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Fri Apr 14, 2006 6:51 pm |
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efflandt
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Location: Elgin, IL USA
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Papers for the particular loan should indicate what the variable rate is based on. Some may be tied to LIBOR rate (which apparently varies for different time periods). Some may be related to Wall Street Journal Prime Lending Rate. And some are tied to a select group of banks on the west coast (something starting with "C").
I have a fixed rate home loan, but the free HELOC included to borrow paid principal (if I ever need it) is prime - 0.5%. Since prime is currently 7.75%, HELOC rate is 7.25%. But for 3% or $75 balance transfer fee limit, I could borrow at 0% for a limited time or 3.99% for unlimited time unsecured from credit cards, which even without tax deduction could be a better deal depending upon amount and time frame.
Banks are in business to make money and they work interest spread to borrow money at one rate and loan it out at a higher rate. So you are unlikely to safely make as much interest on your money from the same source you borrow at a variable rate from. Although, with some risk you may find an investment that meets or exceeds your loan interest rate over the long term. You are not going to come out ahead stashing the cash in savings account or money market.
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Fri Apr 14, 2006 10:24 pm |
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