Financial institutions are compensating for shortfalls by offering ultra-convenient home equity lines of credit (HELOC).

Banks recognize that convenience is a big selling point for the home equity line of credit. As a result, they've played up this convenience over the years by giving homeowners better planning tools and more ways to access their cash. The following are some of the most attractive HELOC convenience features available on the market now.

All roads lead to cash

Most HELOCs allow for multiple methods of borrowing. In the old days, you had to call the lender and have a check mailed. Today, you might go shopping with your HELOC credit card or checkbook. There are also HELOC debit cards that allow you to pull cash from an ATM. Electronic transfers are an option, too, although the transaction times vary. A transfer from one bank to another may take several working days. But if your HELOC and checking account are held at the same financial institution, the transfer could be executed immediately via your online banking system.

Never miss a payment

Auto-pay features keep you from missing payments and accumulating late fees. You start by linking your checking account to the HELOC and selecting a date on which the payment will be made. Some banks even give you a small break on the interest rate for setting up this feature. Generally, the default payment amount will be your monthly minimum, but you might also have the option to pay the entire balance automatically.

Loans within your line

A line of credit is perfect for smaller, periodic expenses that you can pay off quickly. For larger purchases, such as cars or home remodels, fixed-rate, amortizing loans are more appropriate. For this reason, many HELOCs now give you access to fixed-rate draws. This means you can use your HELOC credit limit to borrow specific amounts as fixed-rate loans. Each loan within your line would require a separate principal-and-interest payment. You can usually select the payoff period, which gives you some control over the associated monthly payment.

Protection against rising rates

A fixed-rate lock will convert some of your HELOC debt into a fixed-rate loan. Converting your outstanding HELOC debt into a fixed-rate loan protects you against rising rates and helps you pay down principal faster.

Refinance avoidance

Some HELOCs require you to pay the balance in full on the day the line expires. Others have a built-in repayment period, which keeps you from having to refinance. Say you have a HELOC with a 10-year borrowing period and a 15-year repayment period. This means that you can borrow against the HELOC for 10 years. Whatever is outstanding at the end of that 10-year period is automatically converted into a 15-year, amortizing, fixed-payment loan.

Home equity lines of credit certainly are designed for convenience, because that's what homeowners want. Just don't forget that even the most convenient debt still needs to be paid back.

Published on December 29, 2010