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Fed News   Fed announcement: June 24, 2009
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Winners and losers

HELOC

When the Federal Reserve meets, we all have questions: What does it mean to me? Will my HELOC rate go up or down? Bankrate is here to help. We've looked at five categories -- mortgages, home equity loans, auto loans, credit cards and certificates of deposit -- to determine if the Fed's moves made you a winner or a loser. Here's a look at home equity loans:

Winner: HELOC borrowers

The Federal Reserve's latest rate cut will make it even cheaper to borrow funds through a home equity line of credit, or HELOC. In addition, HELOC borrowing costs are tax-deductible.

The combination of lower interest rates and tax-deductibility makes HELOCs among the most attractive forms of credit in the current marketplace.

Many lenders are moving to freeze access to HELOCs as economic conditions deteriorate. But borrowers who escape this fate are likely to enjoy rock-bottom borrowing costs until the Fed starts raising rates again.

 Loser: Home equity loan shoppers

Fed rate decisions do not directly impact the direction of home equity loan rates. However, in recent weeks, loan rates have soared to their highest levels since 2002.

If you are shopping for a home equity loan, you will almost certainly pay north of 8 percent for the privilege of borrowing at a fixed rate.

As HELOC rates drop in coming weeks, the spread between HELOCs and home equity loans could easily top 3 percentage points.

 Take action

The Federal Reserve's decision to cut the federal funds rate by at least 75 basis points means borrowing costs on home equity lines of credit will continue to plunge.

Rates on home equity loans have been soaring lately and are unlikely to move dramatically based on the Fed's most recent action.

If you have access to the home equity line of credit, it is likely to offer your best bet for borrowing at the lowest rate possible. Just remember that failure to make your monthly HELOC payment can put your home at risk. So, borrow prudently.

If you don't have access to a HELOC, you may have to wait a long time before the opportunity to borrow comes around again. But it will arrive eventually.

"We're probably closer to the bottom of it than we've been in a long time," says Bob Walters, chief economist at Quicken Loans.

After all, he adds, "you can't have negative lending."

-- Posted: Dec. 16, 2008
 

 RESOURCES
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