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5 benefits of a home equity line of credit (HELOC)

How to decide if this type of credit is right for you

Have we got any DIY-ers out there? A home equity line of credit could fund your next DIY project! A HELOC allows you to use the equity you’ve built in your home to pay for home improvement projects, major purchases, or anything you might need “just in case.” Review the benefits and drawbacks of HELOCs to decide if it’s the right financing for you!

Pros:

  • Interest rates are often lower compared to other loans or credit cards, and any interest paid may be tax deductible if you use the money for home improvements. Consult your tax advisor to learn more.
  • With a line of credit, you have more flexibility on timing of borrowing funds and repaying the balance. You can borrow money as needed over time rather than borrowing one lump sum, which can keep your payments even lower.
  • After a set draw period, or the time in which you’re allowed to borrow funds, you only pay interest on the amount you use out of the total borrowed.
  • If your plans change once you’ve already secured a HELOC, that’s OK. Typically, you can use the credit line as you wish without seeking approval from your lender, unlike other loan types.
  • Types of credit and payment history are two components used to calculate your credit score. Adding a HELOC to your credit history and making on-time payments can boost your score.

Cons:

  • Typically, this revolving credit line comes with an adjustable interest rate, which can be a risk if the rate increases greatly before you’ve repaid the balance.
  • Your house is used as collateral to secure a HELOC, so if you fail to make payments, the lender can seize your home.
  • Lenders have the ability to reduce or freeze your credit limit at any time due to the housing market’s effect on your home’s value.
  • During the draw period, you’re only required to pay back interest, but once that period ends, you must start paying back principal as well, which could skyrocket your payment if you’re not prepared.
  • You may have to pay fees when securing a HELOC, including appraisal fees, attorney fees, title search fees, annual fees, among others. Consult with your lender to prepare for any upfront charges.



HELOCs are a great option if you have sufficient equity in your home and you’re disciplined with payments, but always remember your home is at risk with this type of credit. Consider your financial habits and your goals before applying for a HELOC. If you’re still feeling lost, learn more in this blog or send a message to our consumer lending team, and we can help you decide on the next step for you and your family!

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