Q.We are thinking of opening a $100,000 home equity line of credit to cover college costs for our daughters. We have offers from several banks in our area for a 4.5% variable-rate loan. We can pay this off in five years with just a little more than our monthly first mortgage cost. Should we avoid the variable rate for the equity line and go with a traditional equity loan?

A. No. Home equity lines of credit (HELOCs) are a much better deal right now. The lenders quoting you 4.5% are offering very competitive interest rates (although you might be able to find a better deal using Interest.com's substantial database of home equity rates.)

In addition, a line of credit usually costs little or nothing to open, while a home equity loan carries many of the costs of refinancing.

HELOC terms are more flexible, too. You have the ability to decide how much of the principal to repay each month, and that's a good option in these uncertain times.

HELOCs are always variable-rate loans, but we don't think the rate will go up significantly for well over a year, maybe longer. The Federal Reserve, which indirectly regulates HELOC rates with its rate cuts and increases, probably will not start raising rates again until the economy is on solid footing. That means your HELOC rate likely would not change, either.

The average cost of a home equity loan is well above 8%, according to our most recent survey of major lenders. So HELOC rates have a lot of room to reset before they would overtake traditional home equity loan rates. And by the time they did, you would have saved a lot of money.

At some point, if a home equity loan becomes cheaper than a HELOC, you could refinance into a traditional equity loan.