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As the mortgage market inexorably tightens its' screws, you may be wondering how the changes will affect you if you took advantage of the low interest rates we enjoyed over the past few years to get a home equity line of credit. The number of home equity lines of credit has been at record numbers for the past few years. In fact, it seemed for a while that Americans were slurping up HELOCs like pigs in the dumpster behind the local Country Buffet. One study by our friends at Equifax revealed that 10% of loans at American banks were HELOCs, almost double the amount at the beginning of the decade.

So, if you are one of those that got a HELOC in the last few years to use for paying off high interest credit cards, real estate investing, the kid's college, or just fun money (not a great idea), what should you do, if anything, as the Fed raises interest rates? Because HELOCs are an indexed, variable rate, financial product, that has caused rates on home equity financing to steeply climb, with the interest rates on some borrower's credit lines increasing by 2 points or more. According to HSH Inc, the nation's leading publisher of consumer loan information, the average HELOC rate has jumped up from 6.75% in 2004 to the current average as I write this of 8.71%.

If you find yourself with a HELOC in such an environment, how should you handle it? You can run screaming through the neighborhood, but that might frighten your neighbors and probably won't do much to help your financial situation. You do have some options.

HELOC option #1
Refinancing – You can refinance your HELOC into a fixed rate product such as home equity loan. That will stabilize the interest rate you're paying and help stop the bleeding. Another HELOC refinancing option is to refinance your mortgage and pay off all or part of your outstanding credit balance. There are some things to remember if you pursue the refinancing strategy, however. The main thing is that you'll lengthen your mortgage.

When you refinance, you are resetting the mortgage clock back to the beginning. If you've paid down a substantial portion of your principal, you will end up paying up more in total interest due to the new, longer term of the loan. Something else to think about is the possibility of a prepayment penalty. Look at your loan agreement to see weather or not you you are eligible to pay the lender their bonus or not.

HELOC option #2
Sit tight and keep your HELOC just as it is. If you have relatively low balance on your credit line, it make more sense to just hang on for a while. The rates for many other forms of financing has risen in recent years as well, so a HELOC is still a comparatively inexpensive form of financing. If you plan on using your line of credit for home improvements, you should investigate the availability of companion programs offered by various retailers. These will give you discounts if you have a HELOC with certain lenders. If you have a HELOC and you're contemplating a remodel or other home improvement project, check with your lender for the availability of such programs. You could get substantial savings on need products.