Does a HELOC makes sense for you?

A home equity line of credit can be a valuable tool, but is it right for you?

According to a February white paper from CoreLogic, “During the first three quarters of 2015, lenders originated nearly 976,000 new home equity lines of credit (HELOCs) with combined limits in excess of $115.8 billion. Both of these figures were the highest for the January-through-September period since 2008 and represented year-over-year gains of 21 percent and 31 percent, respectively.”

While they are extremely popular right now, there are some things you need to look at before opening up a HELOC.

If you’re looking to remodel or improve your home, especially to increase resale value, most experts would tell you that a HELOC makes a lot of sense.

If you want to use a HELOC to pay off debt, that may be the wrong choice. While it could help get credit card collectors off your back, you’d be putting your home at risk, as your home is the collateral on this “second mortgage.”

Be sure of exactly what you want use your HELOC for before you open it, that way you won’t be tempted to use it to fund a vacation, a boat, or some other unneeded luxury.

Home equity lines of credit usually have variable interest rates, so keep this in mind. There’s no guarantee that your rate won’t climb and leave you with more debt than you ever wanted.

A HELOC can be an asset but check with your bank and make sure the interest rates and fees are going to be something you are okay with dealing with for the foreseeable future.

John Pettit

John Pettit

John Pettit is the Managing Editor for Web: Details