Don Taylor, a financial analyst with Bankrate.com, answers a question below concering the use of a home equity line of credit:

Q: What do you think of having a home equity line of credit (HELOC) on your home? My parents have no money saved at all but they have about $300,000 in equity in their home.

A: I think a home equity line of credit can be a realistic alternative to an emergency fund, although there are some downsides to this approach. First, it’s common for the line to require a minimum withdrawal when the loan closes. So on top of the closing costs for the HELOC, the homeowner faces the interest expense on this minimum draw. Because most lines of credit have a prepayment penalty, the homeowner has to find a place to invest the money to mitigate that interest expense.

If the minimum draw is $10,000, the interest rate is at 8¼ percent, and your parents can only earn 5¼ percent on savings; there’s a 3 percent spread between what they pay and what they earn. That’s $300 per year.

Let’s say that closing costs were $800. Ignoring any tax impact from the potential Florida mortgage loan interest deduction on their taxes, they spent $1,100 in year one to have a line of credit in place for financial emergencies. If an emergency fund is typically sized at three to six months worth of living expenses, you have to ask what percentage of the emergency funds $1,100 represents.

Another issue is that being able to draw against the line is only allowed in the early years of the loan agreement. As the ability to draw against the line expires, your parents would then have to pay off the old line and take out a new line to keep having the money available.

There’s enough variability in closing cost, interest expense, prepayment penalties and draw requirements that it’s worth it to compare different HELOCs. I suggest doing this without filling out an actual loan application because they don’t want a series of Florida home loan applications on their credit reports.

Ask the loan officer for its HELOC terms. Low closing costs, low interest expense, long draw periods and short prepayment periods all contribute toward making a HELOC a viable alternative to establishing an emergency fund.

Robert J. Bruss, a real estate lawyer and broker, replies to questions about housing and mortgages in a weekly, syndicated column. In his most recent Q & A piece, Bob addresses tax assessments, how to handle a real estate partnership in a slower Florida housing market, and how to manage a home equity line of credit — all potentially important issues for residents, these days especially. Let’s take a look at what he has to say…

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Q: I own 50 percent of a property with a partner. In February 2006 we hired an appraiser who valued the property at $295,000. But with the recent change in the housing market, only three comparable sales (comps) have occurred nearby in the last six months, and for an average of $260,000. What is a fair price to offer to buy out my partner?

A: If the recent sales of those nearby properties are comparable to yours, it sounds like a fair buy-out price would be 50 percent of $260,000, minus any debts such as a Florida mortgage or unpaid property taxes. Or you and your partner might want to hire an appraiser to make a new appraisal.

Q: I have a $30,000 Florida home equity loan, to use for home improvements. Currently, I am paying 8.5 percent interest and have borrowed $3,800. But I received a mailer from the lender offering to lock in 6.9 percent interest. However, the minimum must be $4,000 or higher. That will mean my monthly payments will increase. I will soon need another $4,000 to replace the roof. How should I go about this?

A: That 6.9 percent locked-in rate is much more attractive than the 8.5 percent interest you now pay. Why not borrow the additional $4,000 for the new roof and lock in 6.9 percent interest on the entire amount? That sounds like a bargain for an equity line.

Q: About 20 years ago, my husband inherited two parcels of vacant Florida land from his parents. Until the last few years, the market value was around $8,000-$10,000 per. Since then, their value has increased significantly.

We constantly receive solicitations and offers to buy the lots. According to the property tax assessments, each lot is worth around $32,000. But we have never actually seen these lots. Now that college expenses are quickly approaching for our children, we are trying to decide if it would be wise to sell them. What is the best way to handle this by long distance?

A: Take the money and run! However, before selling you should visit the lots and talk with local real estate agents who sell similar properties nearby. Or, you might want to hire local professional appraisers to give you an unbiased answer about their market value.

The local assessor’s valuation might be accurate, based on similar recent nearby lot sales. Or it could be too high or too low. The situation you describe is not a do-it-yourself sales project. Considering the low value of the lots, paying the customary real estate agent 10 percent commission for vacant lot sales could be a great investment to get rid of them after you learn their true market value.

The Miami Herald’s Meg Green, a financial expert and columnist, recently responded to a reader inquiry regarding the use of a home equity line of credit to purchase acreage in North Florida.

Given that we’ve recently touched upon this issue as well, you might be interested in her answer if you are looking to purchase a home or land — be it your first or second residence, or an investment — anytime soon.

Interest rates being what they are, it’s getting expensive to take out a Florida home equity loan. So what should the reader do? Try to ride it out? Take both their mortgage and equity and refinance the whole thing? Is that a worthwhile endeavor?

Let’s assume they owe $104,000 on their Florida mortgage (they have not called for a payoff amount yet) and $69,500 on the equity line. What’s next?

The answer, at least in this professional’s estimation, is that a floating line of credit, i.e. this equity line, is going to continue to get more expensive as the interest rates continue to rise — if not this year, then possibly in the near future.

Therefore, it would be smart, if you’re planning on holding the acreage for the long haul, to fix your expenses. You don’t want to leave this up to chance, especially if you are already battling. That would mean rolling the two loans into one Florida mortgage loan at a fixed rate.

If you take a 30-year mortgage, which will be far more affordable, you can always pay it down faster if your circumstances allow for it. Funny enough, the fixed-rate mortgages are still at low rates. With the current market conditions, it’s time to grab one while you can.

Many lenders willing to issue you a home equity line of credit are now allowing customers to freeze their rate on outstanding balances.

Take the case of Andy Hallmark and his wife. They faced a tight squeeze financially, one that’s now bringing pain to many homeowners around the country: Their floating-rate home equity credit line had risen to uncomfortably high monthly payment levels — the direct result of the Federal Reserve’s campaign to increase interest rates steadily over the past two years.

The couple knew its options:

• Hunker down, stick with their $70,000 credit line and risk further payment jumps in the months ahead.
• Consider a mortgage refinance option and pull out an additional $70,000 to pay off the credit line. That’s what’s known as a cash-out refinancing.

According to Freddie Mac, the mortgage investment giant, roughly nine out of every 10 refinancings this year involved cash-outs — many of them to pay off variable-rate credit lines.

But the family decided to try something different and wildly improbable in their estimation. They called their lender and asked to convert their variable-rate credit line into a fixed-rate mortgage loan with a fixed term.

The answer was even better than yes: The rate was fixed well below the 8.25 percent bank prime the floating credit line was tied to, and there were no fees involved. It sounded too good to be true, but was not. No appraisal, credit checks, title or closing costs. It all got done almost overnight.

SETTING THE NEW STANDARD

Although many Florida mortgage lenders aren’t actively publicizing it, people are discovering the new industry standard: Most major players in the home equity loan arena will now allow credit-line customers to escape the Fed’s rate increases and freeze their rate on a portion (or all) of their outstanding balances.

Some banks will even turn your floating rate credit line into a bevy of tax-deductible financial planning choices, fixed-rate and variable-rate.

You might, for example, take your $50,000 floating-rate credit line and convert $30,000 of it into an interest-only fixed-rate note for five years to pay for educational expenses. You might take the other $20,000 and fix the rate with a fully amortizing payment schedule that will retire the balance (principal and interest) in 10-15 years.

“It really turns your line of credit into a one-stop shop financial instrument,” said Brad Conner, president of Chase Home Equity.

A couple with a $100,000 credit line at Chase, for instance, might want to lock the rate on $20,000 for a home improvement loan 18 months after taking out the line. Then they might want to lock another $50,000 for use as a down payment on a vacation condo. They might also want to leave the remaining $30,000 on a floating rate tied to prime, for quick access.

BEWARE: RATE NOT ALWAYS LOWER

While the new rate-lock programs are designed to give borrowers greater certainty about their monthly payments (and, not coincidentally, retain them as home equity customers for the bank) they don’t always produce lower rates or payments.

Peggy Lawlor, a Senior V.P. at Bank of America, says a homeowner who’s credit report is in fine shape could qualify for a $100,000 credit line and a $50,000 balance might be paying 7.74 percent as of right now — prime minus one-half a percent.

If they wanted peace of mind about future rate hikes, they could convert the $50,000 to a fixed rate of 8.09 percent, with fully amortizing principal and interest over 20 years.

“Now the interest rate risk would belong entirely to the bank,” said Lawlor.

A deal like this might make special financial sense to homeowners with a low rate on their large first mortgage — say 5.75 percent on a jumbo mortgage loan that they got in 2003 or 2004.

For such borrowers, a cash-out refinancing might not be as attractive as a rate lock on the $50,000 credit line balance. They’d have to give up a fixed-rate Florida home mortgage with a near-historic low rate, they’d pay all sorts of fees, and end up with a new rate of 6.75 percent or higher on an even bigger jumbo.

BOTTOM LINE: Even if your bank hasn’t told you about it, check out your fixed-rate options. Depending upon your primary mortgage amount, interest rate and the size of your credit line, locking in a fixed rate on a credit line might be your best move.

It was always so easy and inexpensive to obtain. A home equity line of credit, that is. More and more borrowers looked to these resources over the years due to their low interest rates. But times have chamged.

What had been a bargain two years ago can be a burden today. Consider: The monthly interest payment on a Florida home loan of this nature of $50,000 has more than doubled in two years, to more than $333. That’s a pain in the bank account.

What is a HELOC?

A HELOC is a credit that can be drawn from - and typically act as - interest-only loans with terms of five to 25 years, after which the principal must be repaid. Interest is tied to the prime rate, which banks charge their best customers, which has soared since June 2004, to 8.25 percent from just 4 percent.

The ease of obtaining a HELOC makes them very tempting.

“It means mostly just walking down to the bank and asking for one,” says Keith Gumbinger, vice president of vice president at HSH Associates, a publisher of consumer loan information.

Not all Florida home equity lines are bad, of course. The interest deductible and these loans can be used to retire more expensive debt.

“If you’re doing it to pay off expensive credit card debt, or for needed home improvement or to pay for education, there’s nothing wrong with that. But many people are using it for day-to-day expenses. For them, the danger is they’ve been given a new tool - for digging themselves a deeper hole.”

Making use of a home equity line of credit

In some high-priced housing markets, according to Ted Gross, a director of the National Association of Mortgage Brokers, people used HELOCs to afford pricey homes instead of regular Florida home loans.

“A lot of people took out HELOCs because it’s the only way banks would allow them to purchase with less than 20 percent down,” says Ellen Bitton, CEO of Park Avenue Mortgage Group.

She explains that some banks would extend a conventional Florida mortgage loan for only 80 percent of the purchase price. So borrowers had to come up with the rest as cash down payments. The bank would extend a HELOC, therefore, which was backed by the equity of the home, for all or a portion of that down payment.

Other borrowers, says Bitton, used HELOCs simply because the loans were so cheap. “Many people who bought property a few years ago thought, ‘Rates are so low, I’ll just [buy it with] a Heloc.’ Now they’re going to pay for it.”

What to do about your HELOC

So, how can borrowers get out of a Heloc hole? Here are some suggestions:

Prepay the Florida home loan. If they have the cash, they could pay off the loan immediately. If it’s less than three years since taking out the loan, however, they would probably incur a penalty of between $350 and $500. That’s probably worth it, especially for a large loan.

Take a cash-out refi. Refinance the primary mortgage and pay back the full amount of the HELOC.

Rates are a couple of points lower on a 30-year fixed rate today than on a HELOC. Application fees, title search and insurance and other expenses will increase the total debt but monthly payments may still be lower than the blended total of the old primary mortgage and the HELOC. Plus, with a fixed rate Florida home loan, borrowers know exactly what their payments will be.

Switch to a fixed rate home equity loan. Unlike HELOCs, Florida home equity loans are usually fixed-rate loans. They don’t cost as much as a mortgage refinancing to execute, but there still are some closing costs. Plus interest rates run a point or so higher than for 30-year, fixed rate mortgages, but that’s still a savings compared with HELOCs.

Be aware of all options. Let us know what other questions come to mind as you attempt to see which Florida home loan refinancing options would save you the most time/money.

We’ve already discussed how to handle debt WITH your Florida home loan. But what about how to deal with debt FROM your Florida home loan.

Did you know the average homeowner owes $115,200? The issue of how to lower this amount is one all individuals face. In the fast, Florida home loan refinancing would be a no-brainer - but interest rates are currently high across the board.

With that option shelved at the moment, consider these three moves:

1. Refi the expensive HELOC
Home equity lines of credit were the crack cocaine of the home improvement binge of the past few years - and it’s easy to see why.

Three years ago, the minimum monthly payment on a $100,000 line of credit was just $333. But now that the prime interest rate (which is the rate most HELOCs are pegged to) has doubled to 8 percent, the minimum is $666.

If you can’t pay off the HELOC, you may be able to convert it to a conventional Florida mortgage loan.

Another solution is to refinance it and your mortgage into a single fixed-rate Florda home loan - if, that is, you can find a rate that beats what you are paying for both loans and saves you enough to cover refi costs.

2. Cancel PMI
With home prices rising so quickly, it’s been tough for buyers to cobble together a decent down payment.

If you put down less than 20%, you may have to pay private mortgage insurance (PMI). The extra cost - $16 to $50 a month for every $100,000 of debt - may seem so inconsequential that you forget you’re paying it, but it adds up over time.

If you took your mortgage out after July 1998, your Florida home loan lender must automatically cancel your PMI once you’ve paid off 22% of the loan. But as long as you’ve paid the Florida mortgage loan on time for two years, you can ask that PMI be discontinued when your equity reaches 20%.

Here’s where rising prices become your friend: You may hit the 20% mark sooner than you expected if prices in your area have risen significantly - all that gain belongs to you, not the lender.

You’ll have to spend about $350 for an appraisal to prove that your gains and principal payments add up to 20%. But just a few months of PMI savings could cover that cost.

3. Know when to prepay
There’s nothing like paying off your mortgage for a feeling of freedom. But that doesn’t mean it’s a good financial move.

Prepaying your Florida mortgage (or any debt) is economically the same as earning a return equal to the interest rate on the loan. However, recent low mortgage rates - you could be paying less than 6% on a 30-year loan - don’t outstrip what stocks have returned historically.

A better move now for older workers with poorly funded retirements and a lot of home equity may be to take on more debt, says Keith Gumbinger of HSH Associates. “If you’re planning on selling that four-bedroom behemoth when you retire, you could take money out of your home with a cash-out refi and invest it,” he says.

Options, options and more options. Be aware of all of them if you feel as though Florida home loan debts are piling up.

With Florida home loan rates rising to new highs, many issues are at stake for potential buyers and current owners. For example:

If you have a home equity line of credit, is it time to refinance? Or should you keep it, despite the rate having almost doubled in the last 21 months?

Two years ago, a home equity line of credit looked like a great deal. These credit lines gave homeowners access to money at rates that were lower than those on fixed-rate Florida home equity loans or first-lien mortgages. Cheap credit lines allowed borrowers to use their homes as ATMs to pay for home improvements, college tuition, cars and vacations.

A change in Florida home equity lines

But credit lines are indexed to the prime rate - and that means borrowers’ minimum monthly payments go up whenever the Federal Reserve raises short-term rates. The Fed has done so 15 times since the middle of 2004, raising the prime rate from 4 percent to 7.75 percent. Most observers expect the Fed to hike at least once more.

Let’s take the hypothetical example of someone who borrowed $30,000 against a home equity credit line when the rate was 4 percent. Two years later, the same borrower still owes $30,000 because she has made only the minimum payments, which cover interest and not principal.

Now that the rate is 7.75 percent, the minimum monthly payment has risen from $100 to $193.75.

As you can see, credit lines are no longer the great deals they once were. The average rate on a credit line is now HIGHER than the average fixed-rate Florida home equity loan. And 30-year, fixed-rate mortgages are even lower.

Borrowers are left with three options:

1. Keep the credit line.
2. Pay it off and replace it with a fixed-rate home equity loan.
3. Do a cash-out refinance on the first-lien mortgage and pay off the credit line with the proceeds.

Maintaining the credit line

A credit line has two advantages, says Michael Moskowitz, president of Equity Now, a mortgage lender in New York: It grants you flexibility, and you pay interest on the amount owed and nothing more. If those qualities are important, you might want to keep the credit line.

The typical use of a Florida home equity line of credit has expanded to include people who need to borrow money periodically, using their house like a credit card - homeowners who renovate their homes in stages, for example, or parents who pay tuition. For these people, the flexibility of a credit line outweighs the rising interest rate.

Ideally, these borrowers draw from their credit lines and then pay some or all of the balance before drawing against the credit line again. Using a credit line this way is cheaper than using a credit card, and the interest is tax-deductible.

“If they’re not fully drawn out, and expect money to go in and out, they keep a home equity line of credit even though rates will keep going up,” Moskowitz says.

Refinancing into a fixed Florida home loan

If you can stand the higher payments, it might make sense to refinance the credit line into a fixed-rate Florida home equity loan, says Anthony LaGiglia, a financial planner with J.J. Burns & Co. in Melville, N.Y.

Right now, rates on home equity loans are roughly the same as those on home equity lines of credit. But home equity loans sport higher payments because the minimum payment includes interest and principal, and not JUST interest.

Cash-out refinancing

The other way to handle a line of credit is to pay it off with a cash-out refi. That’s when you refinance your first-lien mortgage for more than you currently owe, take the difference in cash and use that money to pay off the home equity line of credit.

Paul and Lisa Boucher are going the cash-out-refi route. The couple and their three children own a house south of Provo, Utah. When they got their home equity line of credit to finish the basement, the interest rate was 5.25 percent. Now it’s almost 10 percent. Moreover, their primary home loan is a payment-option adjustable-rate mortgage, in which the interest rate has risen from 5.75 to 6.5 percent since July. It probably will rise more.

So they’re refinancing –switching the first mortgage to a 30-year fixed, probably at 5.5 percent after paying discount points. They’ll borrow more than they owe on the payment-option ARM and use the money to pay off the $2,000 in debt remaining on the line of credit.

The Bouchers are lucky - they’re refinancing their primary mortgage at a lower rate. Not everyone is so fortunate.

“Unfortunately, the window has closed for some people,” LaGiglia says. Specifically, those who got Florida mortgages at something like 5.5 percent. Rates are so much higher now that it doesn’t make sense for these people to do a cash-out refi. As LaGiglia says, giving up a lower rate for a higher rate “is a losing proposition.”

Those people will have to keep their current lines of credit or refinance them into equity loans. It wouldn’t make sense for them to refinance their Florida home loan at this point.

With the nation’s most effervescent local markets simmering down, the overall real estate focus is turning to something much more fundamental: Florida home equity.

• How big is the home equity cushion you are sitting on?
• How much more is your home worth compared with the debts you’ve got loaded on it (in other words, your first and second mortgages, and additional lines of credit)?
• Do you have a 20 percent equity stake? Less than 10 percent?

The common perception is that Americans are turning into debt fiends, unwisely depending on exotic loans, hocking their houses to the hilt, and banking on the pattern of double-digit appreciation rates to bail them out. But a new analysis of home equity holdings suggests that the reality is much more balanced, according to syndicated columnist Kenneth Harney of the Realty Times.

It is true that a surprisingly large percentage of recent home buyers are sitting with minimal (even negative) home equity levels. But on the other hand, and for the most part, homeowners have substantial net equity holdings — a record $11 trillion, almost double what they amassed just five years ago. The results were garnered from mortgage and real estate valuation databases maintained by First American Real Estate Solutions of Santa Ana, Calif., a giant title insurance, credit, and settlement services company.

Appraisal or valuation information on 26 million homes in 36 states, plus loan file data on approximately 20 million active mortgages originated in 2004 and 2005, was used in the study. Some findings do correspond to the stretched-thin, debt-laden portrayals of today’s homeowners and borrowers by the media:

• Nearly one out of 10 was in a zero or negative equity position as of Septembe 2005. Five percent were in negative territory by more than 10 percent — in order words, their combined mortgage debts exceeded their home’s value by more than that amount.
• Nearly 30 percent have equity cushions of less than 20 percent.
• About 44 percent have less than a 30 percent cushion.
• To use some state-by-state examples, more than 28 percent of Colorado buyers or refinancers had less than 5 percent equity in their properties, with about 24 percent of Ohio owners in the same situation. These circumstances apply to 13 percent in Washington, D.C., and around 11 percent in California and Florida.

Equity levels are important measures of financial health and a key component of net worth. The less equity one has, the more vulnerable one is to economic shocks and rising mortgage rates. An owner could find himself walking away with little or nothing at the end of a sale if forced to make one quickly, and a decline in property value could send those with smaller equity stakes to the negative side.

Overall, however, the state of home equity holdings is not nearly so dire. The First American study cites Federal Reserve research which found that most of America’s homeowners have plenty of equity — 57 percent, on average, as of the third quarter of 2005. The figure was practically identical — 58 percent net equity — five years ago, when the housing boom kicked into high gear.

Household equity varies by how close mortgages are to maturity, among other factors. Eight out of 10 people who took out their mortgages in 1985 have equity stakes of 75-80 percent, thanks to paydowns of principal as well as overall price inflation. Similarly, sixty-five percent of borrowers whose loans date to 1990 have 50-55 percent equity, while about half of those who bought or refinanced in 2001 have grown their stakes to 25-30 percent.

The most recent borrowers tend to be the thinnest, thanks to high home prices, piggyback loans, “option” plans, low down payments and other factors that limit the accrual of equity. Nearly 30 percent of 2005’s borrowers are in 0- (-5) percent equity positions. Some of those low-equity homeowners who face hefty payment ”resets” on interest-only and negative amortization loans in the coming two to three years may end up in a bind.

But most need not worry, and if you do, you can still stave off the damage. The bottom line? If you have a low-equity Florida home loan with a reset coming in the future, plan ahead now. Make sure you are in position fiscally to handle what’s in store. Do not risk the equity you already have, plus the equity you’re almost certain to grow in the future, by failing to see the big picture.

As home owners look around and see that short-term interest rates are on the rise, they have to wonder: is it time to refinance my Florida home loan?

For over a year and a half, rates on credit lines have been increasing. Conversely, long-term mortgage rates have been falling for close to two months. Combine these two figures and it gives borrowers a chance to pay off their credit lines through other types of loans.

Before you decide whether it makes sense to ditch your credit line, you have to do some math and think about the price you’re willing to pay for certain types of flexibility. We’ll try to explain these scenarios in the most straightforward way we can.

The changing nature of home equity lines of credit

Home equity lines of credit (HELOCs), usually go up and down with the prime rate. From the summer of 2003 to June 2004, credit lines were a great deal for borrowers because the prime rate was 4 percent during that time. A lot of homeowners got HELOCs at prime or close to it. After that, credit lines remained attractive even after the prime rate began its slow rise in the middle of 2004 because the rates still were relatively low … for a while.

As of this month, however, the pendulum has swung by 3 percentage points, which is a lot when you’re talking about large debts. In September 2003, the average rate on a credit line was 2.08 percentage points lower than that of a 30-year, fixed-rate mortgage. At the end of 2005, the rate on the credit line was almost 1 percentage point higher.

What does all this translate to?

If you have a credit line, the rate almost surely is higher than the rate on your primary mortgage. Some borrowers might want to keep their credit lines anyway. Others might benefit from doing what’s called a cash-out refinance of their primary mortgage. And others might want to swap their credit line for another type of equity debt.

“What I do for people is I look at the weighted average of what their mortgage rate is,” says Bob Moulton, president of Long Island-based Americana Mortgage Group. Moulton offers the following example (prepare yourself for some math):

How to weigh your debt

Let’s say you have a $200,000 primary mortgage at a rate of 5.875 percent, plus a credit line with an outstanding balance of $100,000 at 7.25 percent. The first thing to do is add all of the mortgage debt. In this case, it’s $300,000.

Then, you divide the amount of the primary mortgage ($200,000) by the total debt ($300,000). The result is 0.67. Multiply that by the rate on the primary mortgage: 0.67 times 5.875 equals 3.94.

Do the same with the credit line. The outstanding amount on the credit line is $100,000. Divide that by $300,000 and you get 0.33. Multiply that by the credit line’s rate: 0.33 times 7.25 equals 2.39.

Add those two numbers to get the blended average: 3.94 + 2.39 = 6.33. In this example, the hypothetical homeowner is paying a blended average of 6.33 percent on both mortgages.

What does all this mean?

In this case, Moulton says he would tell the borrowers that they could do a cash-out refinance and eliminate the risk of the HELOC rate going up even more.

In the first week of 2006, a borrower with good credit report might be able to get a 30-year fixed Florida home loan at 6.25 percent, which is lower than the blended average in this example. Or the customer could get a 5/1 ARM with an introductory rate of 5.75 or 5.875 percent. The latter option would be a good choice for someone who plans to sell the house within five years, because a 5/1 ARM’s initial rate lasts five years, then adjusts annually after that.

There are a lot of things to consider here.

If you keep a low balance on the credit line, it doesn’t cost you much every month, and you might as well keep it so you can borrow against it in an emergency. If you periodically draw against the credit line (to pay college tuition, for example), and pay down most or all of the balance before using it again, it makes sense to keep it.

Furthermore, if you plan to sell your house within the next three years or so, a cash-out refi would be a money-loser because the closing costs would outweigh the short-term monthly savings.

However, let’s say you plan to stay in the house for five or more years and you keep a balance of many thousands of dollars on your credit line - in this case, consider doing a cash-out refi or other options.

Other options on your Florida home loan

You could pay off the HELOC with a fixed-rate home equity loan. The equity loan’s rate will be higher, but it might change. The prime rate, on the other hand, is expected to rise to 7.5 percent or 7.75 percent early this year.

Another option is to get a hybrid HELOC. Wells Fargo is the only nationwide bank to offer such a loan, which it calls the SmartFit Home Equity Account. It has some features of a fixed-rate home equity loan and some features of a variable-rate equity line of credit.

SmartFit is a line of credit that you can draw from over and over again. When you draw from it, the interest rate on that sum is fixed for three, five or seven years, depending on what you choose. During that time, you can pay only interest or interest plus principal. At the end of the fixed period, the rate on that portion of the balance moves up and down with the prime rate, or you can convert it into a fixed-rate advance.

The SmartFit account seems tailor-made for people who have lines of credit with competing banks and who are worried that Florida home loan rates will continue to rise. The starting interest rate depends on a number of factors.

It’s also a good deal for people who don’t want to pay 30 years of interest on the things they buy with their lines of credit, says Doreen Woo Ho, president of Wells Fargo’s consumer credit group.

Pay off your credit line sooner

Individuals usually have a purpose for their credit lines, such as buying cars or renovating their homes, Woo Ho says, “and many customers see it as something that they want to pay off sooner.”

When you roll a HELOC balance into a cash-out refinance of the primary mortgage, you end up paying interest on your HELOC purchases for the life of the new loan, which usually is 30 years. Keeping that balance separate, in its own equity loan or line of credit, encourages you to pay for those purchases quicker. You pay less interest in the long run.

If any of this seems confusing, take a deep breath and relax. A number of Florida home loan lenders are standing by, anxious to guide you through each step of the process.