Best financial moves to make: Home equity

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With the Fed cutting short-term rates, what are the smart moves for you to make?

Home equity loans:
Home equity loan rates tend to follow the prime rate, though rates on longer-term loans (those with terms of 10 years or 15 years, for instance) behave more like long-term, fixed-rate mortgage rates.

Best move now:
With the imminent drop in the prime rate, this is a good time to take advantage of a low rate for a home equity loan. Rates probably will increase late this year or next year.

Equity loan rates averaged 7.34 percent June 18. Use
Bankrate’s home equity loan search engine to find the best rates in your area. You’ll find the lowest rates on the shortest-term loans (say, three to five years).

Home equity lines of credit:
Most equity lines of credit feature variable rates and payments tied to the prime rate, which moves up and down with Fed rate actions.

Best move now:
Home equity lines of credit tend to have lower rates than home equity loans. If you plan to repay the debt within a couple of years, it makes sense to get a home equity line of credit.

HELOC rates usually adjust with the prime rate, which will fall to 4 as a result of the Fed’s rate reduction. That means that HELOC rates are at or near their lowest point, although another cut (probably by one-quarter of a point) is not out of the question this year. The rate on a home equity line of credit will rise eventually — probably higher than the rate on today’s home equity loans. But that might take a while.

Equity line of credit rates averaged 4.80 percent June 18.
Search for the best HELOC rate in your area.