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Five Tips on Finding a Home Equity Line of Credit

By sbup Staff

A home equity line of credit (HELOC) can provide the financial flexibility you need to overcome unexpected challenges. Here are five tips to consider when shopping around for your next HELOC.

1. For emergencies only: You need home equity and good credit to qualify for a line of credit, but you also need the will power to resist using it just because it's there. "If the money's going to burn a hole in your pocket, you might want to think twice about a HELOC," says David Mendels, director of planning for New York City-based Creative Financial Concepts. "There's a big difference between using your HELOC and abusing it."

2. Low annual fee: Since a HELOC is similar to a credit card -- you only pay interest on what you borrow -- it makes sense to avoid hefty annual fees, just as you would with credit cards. In the New York metropolitan area, for instance, HELOC offers include annual fees that range from $0 from Wilber Bank (GIW) on a $20,000 HELOC at 3% to $99 from Key Bank (KEY) on its $5,000+ HELOC at 3.74%.

3. Stable bank: "It's important to pay attention to who is giving you the line of credit," says Mendels. "You want a stable bank that will still be around when you need the money from your HELOC." To check the long-term stability of your bank, use's Banks and Thrifts screener.

4. Term: A HELOC is an extra layer of financial security rather than a replacement for a rainy-day fund. But much like an emergency fund, the point of a HELOC is to secure funds long before you actually need the money. So consider going with a longer-term HELOC, such as 10 years or so, to make sure you are covered when you need it.

5.  Interest rate: "Too often consumers focus just on the rate," says Mendels. "The interest rate should be your last consideration, especially if you're not going to use the line of credit." A better rate with a higher annual fee -- such as the $99 fee and 3% rate on a $150,000 line from Evans National Bank (EVBN) versus a $0 fee and 4% rate on an equivalent line from Valley National Bank (VLY) -- only makes sense if you plan on dipping into those funds on a regular basis.

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