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Video: Home equity rates for July 12, 2012

Kristin Arnold

Home equity rates moved modestly to the downside again this week. The average variable rate for a home equity line of credit was down for the 4th week in a row to 5.13%. This also happens to be a 3-and-a-half-year low.

The fixed rate home equity loan also inched lower, falling for a 3rd straight week. The average rate is now at a 4-month low of 6.39%.

What is the difference between a home equity loan and a home equity line of credit, you ask? A home equity loan is a fixed rate, installment loan - meaning you pay it back in fixed monthly payments, known as installments. Your interest rate and your monthly payment will not change, and you know exactly when the loan will be paid off. A home equity loan is used when a lump sum borrowing is needed, such as for a debt consolidation or other one-time expense.

A home equity line of credit is revolving. Think of this like a credit card secured by your house. You can borrow and repay the money as you see fit, borrowing when you need the money and making more than minimum payments whenever you have extra money to pay it down. The interest rate is variable, so the rate in effect when you borrow isn't necessarily the rate that will be in effect when you pay it back. A HELOC is best used for debts that will be incurred in stages, such as a home renovation project.

Whether you’re looking for a home equity loan or line of credit, you can find the best rates by visiting the rates tables at Bankrate.com. I’m Kristin Arnold.

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