A HELOC is a home equity loan that resembles a credit card in the way it is issued. The loan is actually a line of credit based on the equity of your home and can be quite flexible to your growing needs. Here are a few key questions you need to ask your lender when shopping for your HELOC.

• Margin Margin Margin. HELOC interest rates are calculated by [Prime Rate + Margin = Your HELOC interest rate]. The prime rate is set and determined by the Federal Funds rate and can be found in the Wall Street Journal. For you tough negotiators, sorry, but the prime rate is out of your hands and set by the government. However, it’s the banks that will set your margin. As a result, you want them to disclose your margin and see if it can be negotiated.
• Start Rates and Quoted Rates. Is this quoted rate using a temporarily discounted margin? You want to find out what your margin will be for the life of the loan because HELOCs are adjustable according to prime. Prime can change but your margin won’t - so you need to make sure the margin you are being quoted is set for the life of the loan and not for an introductory period.
• Premium Loan Amount Discounts. Because HELOCs are considerably less than traditional first lien mortgages, banks will often discount your margin if you take out a larger line of credit. As an example, lenders will lower your margin if you took out a $250,000 HELOC instead of a $75,000 HELOC. But remember, one reason why they discount their margin is because they know there is a very good chance that you will likely tap into this larger line of credit.
• Find out those FEES. The list can go on and on, but keep your eye out for any associated fees with the HELOC. Typical fees will be initial draw fees, required average balance fees, early cancellation fees, and annual fees. Make sure your lender explains each fee - then compare these with other lenders to see which will suit you best.

These are the key questions to ask when shopping for your HELOC, but also ask about the little things such as how you have access to your credit line. Most will issue debit cards and a checkbook, but if you already bank with the lender, they may offer more convenient ways of accessing these funds. And like any home loan, don’t be afraid to ask too many questions - remember, that is the reason why we were hired in the first place.

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