Best home equity moves to make

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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:
This is a good time to take advantage of a low rate for a home equity loan. A rate increase is virtually out of the question until sometime next year.

Equity loan rates averaged 7.93 percent Oct. 30. Use
Bankrate’s home equity loan search 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.

Remember that HELOC rates usually adjust with the prime rate, so they’re liable to fall further. However, some HELOCS have floors below which they won’t sink; for them, the latest rate cut may not matter. If you plan to take more than a couple of years to repay the debt, consider getting a home equity loan instead of a line of credit. You’ll pay higher interest initially on a home equity loan, but the rate won’t go up. The rate on a home equity line of credit will rise eventually — probably higher than the rate on today’s home equity loans.

Equity-line-of-credit rates averaged 5.21 percent Oct. 30. Search for the
best HELOC rate in your area.

— Posted: Nov. 6, 2002