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 that the cost will range between $10,000 and $12,000. His bank offers two home equity loan options. He could have a variable rate LOC at 5% that will adjust annually or a fixed loan for 3 years at 6%. He can afford $400 a month payments and the payment on his fixed rate loan for $12,000 would be $365.06.

a. If interest rates go up 1% per year, which is your best your best option and why?

b. If interest rates go up 1.5% per year, which is your best option and why?