The most recent Federal Reserve announcement has home equity line of credit (HELOC) holders feeling the benefit.

The line of credit second mortgage has an adjustable rate based on the current “prime” rate and the recent rate cut will have an almost immediate effect.

Home equity loan holders (HELOAN) will not feel the effect since their rate is fixed.

Current home owners with an equity loan could refinance into the variable line of credit to ease their monthly payment, and although tempting the thing to watch out for is a pre-payment penalty on their current loan.

Generally speaking, if you are in the market for a second mortgage — choosing the fixed rate home equity loan can give peace of mind with it’s fixed rate however with the lump sum payments begin immediately.

With the home equity line of credit, you typically save on closing costs however the rate can adjust with the market swings and payments can fluctuate. An advantage of the line of credit is that payments don’t automatically exist unless you draw on the amount borrowed. The home equity loan can act as an emergency fund and also protect the loss of home value in a decreasing value market which we are experiencing now (Sept. 2007).