(MONEY Magazine) – So you hope to take out a mortgage, tap the equity in your home or borrow to buy a new car in 1997? Relax. Interest rates don't figure to rise nearly as much as your weight might over the holidays. In fact, borrowing will remain nearly as affordable as it was in '96. And continued competition among lenders will keep fees and most other costs of borrowing well in hand.

In general, the rates you'll pay on adjustable-rate mortgages, car loans, credit cards and home-equity lines of credit may rise about a quarter of a percentage point or so in '97. That's because the Federal Reserve is expected to hike short-term interest rates no more than a half-point (and perhaps only a quarter point) early in the year. In response, banks will push the prime rate from the recent 8.25% to 8.5%. And the prime directly or indirectly dictates short-term loan rates. In the second half of the year, these rates may fall slightly.

By contrast, what you pay for a 30-year fixed-rate mortgage could actually drop from 7.9% today to 7.65% by year-end. Long-term-bond yields, not the prime rate, are the main influence on fixed-mortgage rates, and a slower economy and less potent inflation threat could push down the yields on long-term Treasuries a quarter to half a point, according to MONEY investment strategist Michael Sivy.

Here's a recap of what happened in four major categories of consumer borrowing this year, plus our advice on your best moves for next:

MORTGAGES

What happened in '96. Rates on 30-year fixed-rate mortgages began the year at 7.4%, then slipped as low as 7.24% in February before stronger-than-expected economic growth sent long-term rates higher. By June, 30-year rates hit 8.57% before gradually declining to 7.9% by November. Adjustable-rate mortgages (ARMs), on the other hand, became more alluring. The Fed's short-term-rate cut in January lowered the average ARM rate to 5.39%, and it rose to only 5.79% by November.

What to expect in '97. Look for 30-year fixed-rate mortgages to regain their luster. The combination of slow growth and a Fed rate hike will probably keep inflation under wraps and bring down long-term-bond yields, says Mark Zandi, chief economist at Regional Financial Associates, a West Chester, Pa. economic forecasting firm. Those lower yields could push 30-year mortgage rates down about a quarter of a percentage point to 7.75% by midyear. Since bond markets are historically volatile, the rate could fluctuate between 7.5% and 8.5% throughout the year. On average, however, rates will probably hover below 8%. Meanwhile, the Fed rate hike will nudge ARM rates up at least a quarter of a point to 6.04% by midyear.

What you should do. A 30-year fixed-rate mortgage will be your top buy in 1997. Typically, ARMs, which recently accounted for a third of new mortgages, are more attractive than fixed-rate loans only when the gap between the two rates exceeds two percentage points and fixed rates are 9% or higher. With the spread now 2.1 points and narrowing, loan experts expect fewer borrowers to opt for ARMs in 1997. "With mortgage rates moderately affordable, smart borrowers stick with 30-year fixed-rate mortgages," says Guy Cecala, publisher of the newsletter Inside Mortgage Finance.

What about refinancing? If you have an ARM that's poised to rise to 8% or more in 1997, consider refinancing with a fixed-rate mortgage. But be careful. Rates may not sink low enough to make refinancing worth the closing costs.

The slackening pace of refinancings will cause lenders to compete harder for mortgage business in 1997, which will likely keep fees and other closing costs low. Therefore, when you shop for a mortgage next year, be sure to check out at least a half-dozen lenders for the right combination of low rates and waived fees. And even though mortgage rates can change quickly, don't fret too much about missing a good rate owing to short-term volatility. The difference in the monthly payment between a $100,000 30-year fixed-rate mortgage at 7.75% and one at 8% is a mere $17.

HOME-EQUITY LINES OF CREDIT

What happened in '96. Tight competition kept the average rate on home-equity lines of credit (HELs) roughly 1.5 percentage points above the prime rate, or about 9.75%.

What to expect in '97. The rates on most home-equity lines are tied directly to the prime, so a quarter-point prime increase will result in HEL rates close to 10%.

What you should do. Look for special deals. For example, nearly a third of lenders offer super-low six- or 12-month introductory rates. Even if permanent HEL rates rise, lenders will keep those teaser rates low to attract new business, says Sara Campbell, director of research at financial research firm Bank Rate Monitor. Many lenders waive closing costs on HELs as well. If you want to use a HEL for six months to a year, pick a teaser-rate loan; if you expect to keep tapping the credit line for a year or more, choose a low permanent rate.

The best permanent-rate deal of all next year will be HELs that charge only the prime rate for the life of the loan and no closing costs. And--hooray!--they're spreading fast. According to Keith Gumbinger, vice president at mortgage tracker HSH Associates, at least some lenders in half the 105 markets the company surveys offer these great deals. Big lenders with prime-only HELs recently included Apple Bank for Savings in New York City (800-525-1525), Huntington Banks in Columbus, Ohio (800-480-2265) and U.S. Trust in Boston (800-441-8782).

CREDIT CARDS

What happened in '96. The average credit-card rate dropped from 18.1% to 17.2%. But card delinquencies hit 3.66% of accounts, a 22-year high, prompting lenders to get stingier about increasing credit limits and about giving low-rate cards to marginally creditworthy applicants. Plus, many issuers started to hike penalties and impose late fees more quickly (see "Consumer Alert: Avoid the New Credit Penalties," November).

What to expect in '97. About 85% of credit cards have variable rates, so the rise in the prime and short-term Treasury rates will quickly translate to credit-card rates that are at least a quarter point higher than today's average 17.2%. Industry watchers predict that issuers will continue to send out teaser offers with introductory rates as low as 4.9%, though computer systems will permit issuers to home in more narrowly on the most attractive applicants and to fine-tune rate offers depending on how creditworthy each customer seems to be. So you may get a mailboxful of attractive card offers only if you have a solid credit history, pay your bills on time and carry a balance on your cards. "If you have an imperfect credit record, it will be tougher to get credit next year," warns Ruth Susswein, executive director of Bankcard Holders of America.

Cardholders who pay up on time will continue to be unpopular too. Credit experts think that some card issuers may follow the lead of GE Rewards MasterCard, which will charge its cardholders $25 a year starting in late 1996 if they pay their balances in full every month. However, some issuers may try a carrot, not a stick, to encourage cardholders to carry a balance. For example, in November, AT&T Universal lowered some cardholders' interest rate to 13.85% in an apparent attempt to boost outstanding balances.

What you should do. Credit-card issuers are coming down hard on even the most minor error--such as socking you with $20 late fees or hiking your interest rate after two missed payments--and charging higher rates to those with blemished credit records. So it's more important than ever to pay on time and keep your credit history clean. If you switch cards to get a low teaser rate, for example, close the old account. Don't apply for credit you don't need, and don't charge your full credit limit on every card.

With credit-card offers coming less frequently, it's smart to stick with a permanent low-rate card instead of expecting to cut your borrowing costs by switching cards when you get the next unsolicited teaser offer. For the names of 40 or so low-rate card issuers, send $4 to Bankcard Holders of America (524 Branch Dr., Salem, Va. 24153). Or check out Money's monthly list of low-rate cards in Your Money Monitor. Better yet, avoid finance charges altogether by joining the growing number of people--36% of all cardholders today, up from 29% in 1990--who pay their balances in full.

CAR LOANS

What happened in '96. Interest rates on car loans barely budged, with the average bank rate staying close to 9% all year. These rates usually move up when the prime rises, but they lag when it falls. Car leases generally carry lower monthly payments than a loan for the same vehicle would, so leasing is gaining in popularity. More than a third--the highest proportion ever--of new cars are now leased, rather than financed with a loan.

What to expect in '97. Bank car-loan rates are expected to rise slightly to about 9.25% with the increase in the prime. Leasing will remain popular, and new Federal Reserve rules on how dealers must spell out a lease's costs will make comparison shopping easier. (See the story on page 19 for more on leasing disclosure rules.)

What you should do. If you belong to a credit union, stop there first in searching for the lowest rate on a car loan. Credit unions offer the hands-down best deals on new-car loans: recently an average of 7.83%, vs. 8.97% at banks. If you don't belong to a credit union, a bank is your No. 1 choice; car dealers charge about 1.5 percentage points more than banks do. In addition, with credit union and bank loans, if you agree to have the payments automatically debited from your checking account, many institutions will shave up to half a percentage point off your loan rate.

The news is also good for borrowers buying used cars. As recently as five years ago, financial institutions charged an average of two percentage points more for used-car loans than for new-car loans. That gap is narrowing, however, as more people buy pre-owned models. Look for banks to offer more competitive used-car rates of 9.75% or so next year.

In short, in 1997, you'll be driving away with a smile.