Tip 4: First Pay With a Rewards Credit Card! If you're contemplating using your HELOC for a major purchase, you should consider whether or not merchant your dealing with accepts credit cards. Why? Because it makes a great deal of sense to pay first with a rewards credit card and then pay off card with your HELOC check. On a recent $14,000 bathroom remodel, I was able to charge plumbing services, cabinets, and almost everything else to my Fidelity/MBNA 529 College Rewards Mastercard. This card pays you back by putting 2% of everything charged into a 529 college savings plan. Result: $280.00 in college savings that would have been missed if I paid bills directly with home equity credit line checks! Whatever rewards credit card you favor, it's sensible to pay first with card whenever possible. Keep in mind, though, you must promptly pay off balance and not incur finance charges.

Tip 5: Replace Your 1st Mortgage with a HELOC! According to Money Magazine, if you have more equity than debt and plan to stay in your home for 3 years or less, you should consider replacing your first mortgage with a home equity line of credit. HELOCs are currently available around country at rates of 4% or lower. Even if rates increase a full percentage point each year, they'll still be low when you pay off loan. Best of all, there are no closing costs with most HELOCS so you won't have to worry about recouping them through interest savings as you do with a traditional mortgage refinance. A savvy person - using tip 3 in conjunction with tip 5 - might even move a portion of his mortgage to a 0% credit card thanks to flexibility of a home equity line of credit.

When you close on a HELOC, on other hand, you will be given a checkbook (or debit card) that you use only as needed. So, for instance, if you're embarking on a multiyear home improvement project for which you'll be writing checks at varying times, a HELOC might be best. Similarly, a credit line is probably best for paying sporadic college expenses. Interest on a HELOC is only charged from time that your HELOC checks clear bank and only on amounts actually disbursed…not value of entire credit line.

3. Do you possess sufficient financial self-discipline for a HELOC? Financially-disciplined borrowers can have best of both worlds…almost. By taking out a HELOC but paying it back according to a self-imposed fixed amortization schedule they can enjoy both flexibility of borrowing cash only as needed and certainty of a fixed repayment schedule. HELOCs are typically more efficient in terms of lower closing costs and a lower initial interest rate. Also, a HELOC may be somewhat easier for borrowers to qualify for since low, flexible monthly payments mean debt to income ratios that loan officers look at are more favorable for borrower.

The one big factor not within HELOC borrower's control is interest rate (see #1 above). Interest rates will almost certainly change over life of a HELOC. This means that a self-imposed "fixed" amortization schedule may need to be periodically refigured. Numerous internet sites provide free, powerful mortgage calculators that can assist you in preparing updated amortization schedules whenever needed. Some lenders are also meeting borrowers' demand for greater certainty by providing HELOC products that can be converted (for a fee) into a fixed rate loan when borrower elects.

As mentioned earlier, HELOCs are much like credit cards and similarity extends to spending temptation. If you are a person who has trouble keeping credit card debt under control and you haven't taken steps to change habits, then a HELOC probably isn't a smart choice.

You might be wondering which home equity product most people actually choose. According to Consumer Bankers Association 2002 Home Equity Study, home equity lines of credit account for 28% of consumer credit accounts followed by personal loans (23%) and regular home equity loans (16%). In terms of dollar value, home equity credit accounts (HELs and HELOCs together) represent a full 75% of consumer credit portfolios with HELOCs having a 45% share of market and HELs a 30% share. Of course, popularity of HELOCs may subside if interest rates continue to rise.

Whichever home equity product you decide on be certain to shop for best deal possible. The market is extremely competitive and there are many non-traditional options, including on-line lenders and credit unions, which should be considered in addition to your local bank.