|Best bet on equity debt in '07: Watch the Fed
|By Holden Lewis Bankrate.com
In 2007, the best moves to make on equity debt can be boiled down to this: Keep an eye on the Federal Reserve.
In the middle of 2004, the Fed embarked on a two-year rate-raising campaign that lifted the prime rate from 4 percent to 8.25 percent. The central bank finally stopped after 17 consecutive rate hikes, and now no one has a clue as to whether the next move will be another increase or a rate cut.
As for the timing
of that next move, some economists
predict it will happen in the
spring of 2007, and others,
quite sensibly, shrug their
shoulders. The folks at the
Fed say they don't know what
their next move will be or when.
Don't expect outsiders to have
any more insight than Fedsters.
If the Fed cuts
the prime rate, more homeowners
will gravitate toward home equity
lines of credit because HELOC
rates are indexed to prime.
But if the Fed holds steady
for a long time, or if it raises
short-term rates again, HELOCs
will lose some of the luster
they had in the first five years
of this century.
Since May, rates on closed-end home equity loans have been lower than HELOC rates, on average.