7. Lifetime cap on rate increases (the amount that the rate can be adjusted over the loan's life) - A good HELOC is something you'll want to keep for awhile. Although interest rates have been at relatively low levels for a number of years, it wasn't too long ago that a 10% loan was regarded as a bargain! The point is that interest rates over time can rise dramatically. You'll want to find a HELOC with a lifetime rate cap that you can live with. Ask your loan officer to clearly spell out the "worst case" scenario for rate increases for the HELOC you are applying for.

8. Ability to convert to a fixed rate loan - When rates do rise, people often get skittish about their variable-rate debt. A useful feature to look for in a HELOC is the ability to convert the line of credit to a standard fixed-rate, fixed-term home equity loan (HEL). You likely won't get an APR as favorable as a newly issued HEL, but you also won't have appraisal or closing costs to pay if you convert. However, note that many lenders charge a fee for converting to a fixed rate loan.

9. Interest-only payments allowed - It is usually best to make regular principal payments on your HELOC balance. Yet a job loss or other emergency can make it a challenge to keep payments current. In these situations it is nice to have the flexibility to lower your HELOC payment as much as possible without increasing your loan balance or raising red flags at the credit rating agencies.

10. Unrestricted ability to repay principal without penalty - On the other hand, you also want the flexibility to pay down principal on the loan when you choose. You may get a bonus from your job that you want to apply to the loan or you may find a 0% balance transfer offer that is worth taking advantage of. In any case, a key component of a good HELOC is the unfettered ability to repay principal.

Shop around and you will be able to find a home equity line of credit with many (if not all) of these features. Keep in mind that your bank is not the only game in town. Credit card companies, mortgage bankers and brokerage firms have all entered the market and offer competing products. Credit unions typically offer excellent terms and should not be overlooked. Also, there are many reputable on-line sources that have lower overhead costs and may be able to offer better terms than the local bank.

Tim Paul has more than 25 years executive financial management experience. His recent area of focus has been to develop and catalog proven strategies for financially savvy persons to get the most from their home equity credit lines. His website is www.sagetips.com.

mail@sagetips.com