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Need cash? A home equity line of credit, or HELOC, offers a convenient and flexible way of tapping into the value of your home.

It works in a way that’s similar to a credit card: You can borrow what you need from the credit line as the need arises, over a period of time.

But the interest is often much lower than you’d find on credit cards, so many homeowners turn to HELOCs to pay down higher-interest debt or make home improvements. The interest rates are tied to the prime rate, which is still relatively low.

Here are some tips for getting the very best rate on a home equity line of credit.

1. Have good credit

One of the most important things a lender looks at in determining your interest rate are your credit report and credit score. You can get a free credit report on Bankrate.

You can also get your credit report from the three major credit-reporting bureaus (Equifax, Experian and TransUnion) before you apply for your HELOC to make sure there are no errors or old debts on your credit record that may be hurting your score.

Be careful not to close a credit card or take on new debt before applying for a HELOC. Both moves can lower your credit score and result in a higher interest rate.

2. Have enough equity

The amount of equity you have in your home helps determine the size of your home equity credit line, and it also influences the interest rate you’re able to get.

The more equity you have, the less likely you are to be weighed down by debt against your home, and the better you look to lenders.

To get an idea of how much home equity you have, find an online estimate for the value of your home and subtract the balance owed on your mortgage.

A HELOC lender generally won’t want the home equity line and your existing mortgage debt to exceed 80 percent of your home’s value.

3. Comparison shop

Shop around for a low HELOC rate starting with the lender who holds your current mortgage, or the bank where you keep your checking account or savings.

Those financial institutions want to keep your business and might offer you a good deal on your HELOC.

Compare any rate you’re offered by a lender to those offered by other players, including:

• Large, national banks
• Smaller community banks and credit unions.
• Online lenders.

Online lenders have lower operating costs, which can mean lower rates. But local banks and credit unions may have a better understanding of your market and offer other advantages.

“For the people who want face-to-face contact, there’s really no substitute for a local branch where you can sit down with the lender and go through various options,” says Rick Sharga, a consultant for real estate, financial services and tech companies.

You can compare HELOC offers from multiple lenders on Bankrate.

4. Ask about rate changes and caps

When you think you’ve found an awesome rate on a HELOC, find out how long it will last and how it might change.

A home equity line of credit typically comes with an adjustable rate that fluctuates with the movement of the prime rate. However, some lenders may give you a fixed rate for an initial period.

Ask each lender about your starting rate, how long it will hold and whether there’s a cap on how high your rate can go. If there is no cap, you run the risk of the interest rate raising your monthly payment above what you can afford.

Note also that during the first stage of a HELOC, you can draw from your credit line and pay only the interest as your minimum monthly payment. At the end of that draw period, which can last five years or more, your monthly payment will include both interest and principal.

“That’s something you need to understand, that your payments could double in a few years,” Sharga says.

Use Bankrate’s calculator to figure out what your HELOC payments will be and how much interest you’ll pay over the life of the loan.

5. Beware of fees

Don’t be so dazzled by a low HELOC rate that you miss fees that could be hiding in the loan. Some lenders will charge upfront fees, third-party fees, an annual fee or require you to draw a minimum amount of credit to avoid a fee.

Make sure you understand all the fees you might be paying in addition to your interest rate. The additional costs can add up.

When you are considering a HELOC, here are some essential things to look for:

• Know your credit rating and be certain it’s high enough to qualify you for a HELOC.
• Know how much equity you have in your home and be certain it is enough to meet loan requirements.
• Don’t assume a big, brick-and-mortar bank is the way to go. Consider a credit union, local banks and online lenders when you shop for a HELOC.
• Online lenders might be able to offer a lower interest rate. However, local banks and credit unions may have a better understanding of the housing market in your area, which can work to your advantage.
• Home equity loans usually have a fixed interest rate, but a HELOC may have a variable rate that goes up or down over time.
• The lender could cancel the HELOC before you are done with it.
• Pay attention to any fees that could come with a HELOC.
• The interest you pay on a home equity loan or line of credit may be tax-deductible, depending on how the loan is used.
• If you want to use home equity to make home improvements, know which upgrades will raise your home value the most.

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