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Interest rates have been steadily increasing over the last twelve months. This reflects the upward trend of the prime rate, which is expected to go up further. The impact of this is that people who went in for Home Equity Line of Credit (HELOC) are now paying much higher interest. They can now opt to convert to a fixed rate Home Equity Loan on the speculation that the interest rate is likely to increase further. In fact it appears that there has been a spurt in the demand for this type of loan in 2005. The interest rates of short-term loans are rising faster than that of long-term loans. The pay off period of fixed rate Home Equity Loans is normally 15 or 30 years.

The advantage of converting HELOC to Fixed Rate is that you liquidate the existing debt, reduce your monthly interest burden, and normally have extra cash on hand. According to reports, in the first week of November 2005, it was possible to avail of HELOC at about 7 percent, up from around 5 percent a year back, and that of a 30 year Fixed Rate Home Equity Loan at about 6.3 percent. The rate could also vary from state to state.

In the given situation, Fixed Rate Home Equity Loan appears to be more attractive. But if you use HELOC only to meet essential requirements, the amount drawn is likely to be small and the quantum of interest that you have to actually pay will be low. This is because the un-drawn portion of HELCO normally does not attract interest burden. Therefore the conversion from HELOC to Fixed Rate Home Equity Loan is likely to be more beneficial if done when you are in need of large amounts.

Take advantage of the competition among lenders. Study different offers before you decide.

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