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.