Lower Your HELOC Rate

A home equity line of credit can be a great tool for consolidating high interest credit card debt, or financing a long-overdue home improvement project. Get the lowest rate possible, and then bank the savings over time.

A home equity line of credit (HELOC) is easy to establish, requires very little red tape, and generally carries no monthly fees, except for payments made on the money you borrow. Best of all, when you don't need to borrow, the credit line just sits there waiting for you to use it. What's more, you don't have to pay any interest until you actually withdraw the funds.

In other words, a HELOC has all the convenient features you enjoy with a typical credit card. Many banks and financial institutions will even issue you a card that resembles a credit or ATM card, or simple checking account style checks. You can then use them whenever you want to access your equity.

Favorable rates

The big difference between a home equity line of credit and a consumer credit card is the interest rate. HELOCs usually charge only a portion of what you might expect to pay for a credit card, because HELOC rates are only slightly higher than the rates charged for mortgages. While credit card interest can easily soar into double digits-and climb into the 25 or 30 percent stratosphere if you make a late payment or commit some other minor account infraction-HELOCs are relatively stable. With a HELOC, for example, you don't run the risk of borrowing over your limit. If you approach your credit ceiling, the HELOC automatically refuses you additional funds. But as soon as you pay down your debt, your available cash kicks in again, replenishing your supply of equity financing.

Tips for lowering rates

To really take advantage of the features of a HELOC, shop around for the lowest possible rate. Then, when you transfer your consumer debt to your HELOC, you'll capture a greater percentage of savings.

To get the cheapest rates, follow these tips before applying:

Pay off debts, clean up your credit report, and raise your credit score.

Spread it around. Find out how much lenders add to the prime rate to determine your interest rate. The prime will fluctuate, but the "spread" charged by lenders determines your bottom line. Get the lowest spread possible.

Don't max out your HELOC. Borrow a little, then pay it off and borrow more, instead of biting off a huge chunk that you'll have trouble repaying.

Over time, each percentage point can translate into hard cash that would otherwise have been lost. Managing your finances with a HELOC can add up to thousands of dollars in savings over time. Those savings are compounded by tax benefits-unlike credit card debt, which is not tax deductible, most home equity loan debt carries valuable year-end deductions.