Released: April 30, 2006

Real estate a handy piggy bank

Source: By Kathleen Pender, San Francisco Chronicle

Need cash? Despite the sharp run-up in short-term interest rates, borrowing against the equity in your home is still one of the cheapest ways to get money. Indeed, the number of Americans using their homes as a piggy bank shows few signs of abating, although the way they are doing it has changed.

Fewer are using variable-rate lines of credit, which are tied to short-term rates, usually prime. These rates follow the federal funds rate, which has gone up 15 times since June 2004. The average interest rate on a line of credit was 7.9 percent last week, compared with 4.7 percent two years ago, according to Bankrate.com.

More borrowers are taking out fixed-rate home-equity loans or refinancing their homes with a new fixed-rate loan and borrowing more than their old balance - known as a cash-out refi.

Fixed-rate loans follow long-term interest rates, which have gone up slightly during the past two years. Today, both types of fixed-rate loans are cheaper than home-equity lines of credit and offer greater certainty.

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