Ask WalletPop about home equity loans: Is 15-year or 30-year better?

A friend e-mailed me with a question about a home equity loan her family is considering. They're going through a credit union, and weighing whether to get a loan at a 15-year term, with 6.75% or Prime minus 50 bps, or a 30-year term with 7.00% or Prime minus 25 bps. "But we'll probably be selling the house in five years!" she said. "What should we do?"

I explained to her that when she was selling really shouldn't weigh into this decision; the terms of the home equity loan almost certainly indicate that it will be paid off whenever the house is sold (it's a "material change" and you can't use the equity of a home you don't own anymore as collateral). Mortgages, home equity loans, and home equity lines of credit are rarely carried to the 10-, 15-, 30- or 40-year term on the contracts, as most homeowners sell their houses or refinance their debt every five years or so. As long as the payments for the 15-year term could fit in her budget, I said, she should take that option; the interest rate was lower and that's all that really matters in the medium-term outlook.

Then she explained the unusual terms of this credit union's loans;