5 ways to tame your line of credit
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Rates on home equity lines of credit go up and down with the prime rate. Responding to the Federal Reserve's rate moves, the prime rate has been raised 17 times since June 30, 2004, and the Fed might have another hike or two to go.

Fixed-rate home equity loans come as a lump sum, and the monthly payments include principal and interest so that the balance will be paid off over a set period. The monthly payments don't change.

Two years ago, the average rate on a HELOC was lower than on a home equity loan. Now it's the other way around. But a lot of people keep their credit lines for the same reason Grundler does: It gives them flexibility. They can pay only the interest or they can make more than the minimum monthly payment and reduce the principal.

3. Home equity loan option
For folks who want to pay down that principal every month, refinancing into a home equity loan is an increasingly popular option. "For the most part, what you see is people paying off their line of credit with a fixed-rate, closed-end second mortgage," says Bob Walters, senior vice president of Quicken Loans.

He says about seven in 10 new second mortgages is a home equity loan, whereas a year ago it was one in 10.

Because of the requirement to pay principal, not everyone is ready for the rigor of a home equity loan. If you have a balance of $25,000 on a home equity line of credit with a rate of 8.25 percent, the interest-only payment is $171.88 a month. If you owe the same amount on a home equity loan with a rate of 7.75 percent and a repayment period of 15 years, the monthly payment is $235.32.

4. The hybrid option
A few lenders, including Bank of America, Washington Mutual and Wells Fargo, offer hybrid credit lines that allow the borrower to set a fixed rate on some or all of a HELOC's balance. Each bank does it differently, but the concept is the same: "It's a home equity loan within a home equity line of credit," says David Rupp, a home equity executive with Bank of America.

Ed Yu of Los Gatos, Calif., twice has taken advantage of this hybrid feature of his Wells Fargo EquityLine with FlexAbility account. He bought cars: $23,000 at 7.5 percent to be paid off in five years, and $33,000 at 8.25 percent to be paid off in10 years. "I anticipate paying these down early (or at least have high hopes to!), but we fixed the rate to ensure that we are still comfortable with our cumulative monthly payments/cash outflows," he says in an e-mail.

Having used $56,000 of the $222,000 credit line, Yu and his wife have more than $150,000 available for borrowing. They're holding it in reserve, but a lot of people in the Yus' position would spend it.

"An emerging, strong use of the product is to purchase vacation or second homes, in addition to the usual home improvement, education and debt consolidation uses," says Lisa Benoit, Washington Mutual executive.

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