Are HELOCs Still a Good Idea?

If you’ve already paid for your house, there are still ways you can reap the benefits of what is often called “good debt.” You can use what’s called a home equity line of credit, or HELOC, to pay for a variety of expenses. There are a few key differences between a HELOC and your mortgage. Including the average interest rate, and HELOC offering different loan terms.

The use of a Home Equity Line of Credits is still on the rise. While their usage has fluctuated, the COVID-19 pandemic lead to an increase in HELOCs. From 2020 to 2021, the number of HELOC originations increased by 10.7% (Home Mortgage Disclosure Act Data).

HELOC loans generally offer lower interest rates from the start. Because they’re secured by the equity you already have in your home instead of the possible resale value of your home, lenders need to charge less interest to secure the value of the loan.

HELOC loans usually offer a “grace period” of interest-only payments. You can pay a smaller amount each month for as much as several years, depending on the terms of your loan.

Because of these benefits and more, HELOC loans are on the rise.

Bear in mind, HELOC loans are not risk-free. You’re securing your purchases with your home. If you don’t pay your loans, you face very serious consequences.

You can lose your house, seriously damage your credit and still be liable for the balance of the loan. Like all debt, home equity line of credit loans are serious financial instruments. You should have a reason for using it and a plan for paying it off.

If you’re interested in getting a HELOC, WeStreet Credit Union can help. They can be used for a variety of reasons, including:

• Home Improvements or Renovations
• Debt Consolidation
• Buying a New Car
• Travel of Vacation Expenses
• Emergencies
• and More

Shopping for A HELOC

When you begin looking into HELOC’s and if they are the right option for you, there are a variety of factors you should consider. These factors will each contribute to the overall cost of the loan, which you can then compare to Home Equity Loans or other options.

First, start your shopping with a loan lender. Come to understand their reputation, reviews, and any benefits of discounts they can offer you. Also consider how long each lender takes to close a HELOC and factor that into your decision.

Obviously, you can reach out to several different loan lenders to get quotes from each of them on the following numbers:

• Interest rate
• Closing costs
• Annual fees

These numbers will help you decide what your estimated cost would be in order to start using your HELOC. Know that your current bank may offer you incentives to finance through them.

HELOC’s are on the rise, and more and more people are considering them when large expenses come their way, and when rates are low. _________________________________________________________________________________________

This article is for educational purposes only. WeStreet Credit Union makes no representations as to the accuracy, completeness, or specific suitability of any information presented. Information provided should not be relied on or interpreted as legal, tax or financial advice. Nor does the information directly relate to our products and/or services terms and conditions.