Home equity loans usually come with variable rather than fixed interest rates. The variable rate must be based on a publicly available index such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate. The interest rate for borrowing under the home equity line changes, mirroring fluctuations in the value of the index. Most lenders cite the interest rate you will pay as the value of the index at a particular time plus a "margin," such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past as well as the amount of the margin.

The best way to know if you are getting a good deal on a home equity loan is to compare different loan plans. Be sure and compare interest rates, late fees, see what index the loan is based on and check out the general terms and conditions.