4. Jamal is considering taking out a home equity loan to cover the expenses of remodeling his home. He is doing much of the work himself on weekends over the course of the summer. He estimates the cost will range between $10,000 and $12,000. His bank offers two home equity loan options: a variable-rate line of credit

(LOC) at 5% that will adjust annually or a fixed-rate loan for three years at 6%. He can afford $400 a month in payments, and the payment on his fixed-rate loan for

$12,000 would be $364.06. (LO 7-4)

a. If interest rates go up 1% per year, which loan is Jamal’s best option and why?

b. If interest rates go up 1.5% per year, which loan is Jamal’s best option and why?