Home equity borrowers know the routine: Loans best suit people who need a specific amount of money and the discipline of fixed payments; lines of credit work for those who are willing to accept the risk of rising rates in exchange for the flexibility to make multiple withdrawals.

But a handful of newer loan programs present borrowers with alternatives that can save them money, experts say.

These programs feature plain old fixed rates, or let people take portions of their lines and fix the interest rate and monthly payments.

"Is a fixed-rate home equity line of credit a good deal?" quips Nancy Langdon Jones, a certified financial planner based in Upland, Calif. "Most of my clients have equity lines, and if they were offered the alternative of a fixed rate, they would switch.

"I would certainly encourage them to."

Catching customers
Specialized home equity lines of credit and fixed-rate options, like free toaster giveaways and interest rebates, are a way for banks to try to snag jaded customers in today's crowded marketplace. In particular, these programs aim to avoid a major Catch-22 of home equity lines: They offer tax-deductible interest, but expose people to inflation through variable rates.

The balance on an equity line with a rate equal to The Wall Street Journal prime rate plus 1 percent, for example, carries interest of 8.75 percent today. That's all well and good, but if rates climb again, a borrower could easily end up paying 10, 11 or even 14 percent down the road, because most lenders set their equity line interest "ceilings" at relatively high levels.

To help borrowers avoid this trap, BankAmerica Corp. offers fixed-rate options on the lines of credit it offers in 17 states. The company consists of the former Bank of America in the West and NationsBank in the Southeast.

"I know that variable rates go up and down, but here you can actually fix a portion of your balance," says Kris Walker, the bank's vice president of product development.

"Say you want to buy a car. The fixed rates in this environment are pretty darn low and you can lock in a rate up to 25 years to pay for the car. Or if you only want five years, you can fix it for five years."

The number of options available during the life of a BankAmerica customer's line varies by location, as does the amount it costs to exercise each one, she adds. Other restrictions, such as those limiting the size of each fixed component, also may apply.

If somebody had a $50,000 line and a $30,000 balance, for example, the rate on the outstanding debt would be 8 percent as of Jan. 19, according to Walker. For a fee of $150, a customer in California could fix a new $10,000 purchase at that rate for 10 years, resulting in a small loan carved out of the line of credit. Monthly payments on the fixed-rate portion would be $121.33.

Variety of deals
Other lenders offer variations on this theme. First Essex Bancorp Inc., for one, allows customers to fix portions of their home equity lines at no charge, according to Alan Jenne, vice president of consumer lending for the Andover, Mass.-based company.

People may exercise the lock option three times during the 10 years they can draw on their lines, though each fixed balance has to be at least $5,000 and no more than 50 percent of the overall credit line, Jenne says. Paying down the fixed-rate debts also frees up money to borrow again in the revolving portion of the line.

Still, some lenders figure it's best to get fixed rates right from the start. First Essex, in fact, offers a fixed-rate line of credit against which borrowers can draw for five years. As of Jan. 22, it featured an 8.74 percent rate.

"It's very popular here," says Jenne, who figures two-thirds of First Essex's home equity borrowers choose fixed rates. "We never really had the equity credit lines priced attractively, so we came up with this fixed-rate line sort of as a compromise."

Seeking an edge
Manasquan Savings Bank of Wall Township, N. J., figures that approach gives them an edge as well. The small oceanside company offers five- and 10-year home equity lines at fixed rates that ranged from 7.25 percent to 8 percent in mid-January.

"There's quite a bit of demand for it," says William Campbell, Manasquan's senior vice president. "The reason we did it is really competition -- to put us at a competitive edge.

"We would give fixed rates on a non-revolving loan, so why not do it on a revolving one?" he adds. "In this low-rate environment, people are looking for fixed rates."

-- Posted: Jan. 27, 1999