HELOC Shopping Spree

America is the land of opportunity-particularly in regard to buying things. Just take a look at your typical supermarket, where the opportunity exists to choose from what seems like 57 varieties of chocolate chip cookies.

A person looking for a second mortgage is in a similar predicament. With the multitude of lenders on the mortgage market, it's hard to tell the good loans from the bad. Relax shoppers; the following tips can help you narrow the field.

Shop margin, not rate

One thing that makes shopping for a HELOC simple is that the majority of them are tied to the prime interest rate. Unlike adjustable-rate mortgages (ARMs), which are based on a variety of different indices, all HELOCs are tied to the same index, the prime rate. Knowing this, you can turn your attention to the main differences among HELOCs-the margin that a lender charges above or below the prime rate.

Most lenders won't tell you the entire story about margins upfront, since it's not required on a Truth-In-Lending Act statement. A typical maneuver is for a lender to offer an introductory rate at or below prime, then, after a short term, they'll bump up the margin. Make sure that you know the margin before you sign on the dotted line.

Watch out for fees

Another form of differentiation among HELOCs will be the fees that a lender charges. Some require a minimum balance. If you don't maintain it, they'll tack on a fee. Others will sock you with an annual fee-or a closing fee-if you don't tap your equity over a set period of time. Before you close on the loan, make sure that you get the low-down on all the potential mark-ups.

If you consider all these HELOC subtleties, you'll be surprised at how pronounced the differences are. Comparing them will make for a much easier buying decision than choosing from among all those types of chocolate chip cookies. You'll just have to taste them all to make the right choice; it's hard to find a sweeter task.