We all experience unexpected issues that cut into our finances and create the need to seek alternative financial support. Maybe you don’t have a crisis, but want to improve your house or put a swimming pool in your yard. Whatever the reason for your financial needs, many people choose a home equity line of credit (HELOC) as the tool to deal with their finances. This brings up one question, is a HELOC right for you? In order to understand if a HELOC will work for you, the pros and cons must be inspected.
The Upside of a HELOC
- HELOCs would not exist if they were a predatory financial tool; they have been around for a very long time; predatory loans don’t last very long. Knowing that a HELOC is a tried and true way of getting financing for things like home remodelling and debt consolidation, here are some of the pros of opening a HELOC:
- HELOCs have fewer fees than a home equity loan. There are no closing costs unless you are a credit risk, and there you don’t have to pay for an appraisal on your home or any fees for applying.
- Another benefit of a HELOC is low-interest rates. Credit cards and other types of loans can have hefty interest rates, not so with a HELOC. Your home equity secures the loan on a HELOC which traditionally means a lower rate.
- You can deduct the interest on the paid on your HELOC from your taxes.
The Downside of a HELOC
- With a HELOC you are putting your home up as collateral. That is a risk, even if it is a calculated risk. You have to keep in mind that if you lose your job or have a financial emergency, you could lose your house. That is the clearest and biggest downside to taking out a HELOC.
- HELOCs use variable interest rates, not fixed. That means that if the Federal Reserve decides its in the best interest of the economy to raise interest rates, yours will go up as well. Even if interest rates were reasonable when a HELOC was taken out, it could wind up with a high-interest rate later.
- You could wind up upside down with a HELOC, that is to say, that you could wind up owing more than the value of your home if you use your HELOC too often.
Is a HELOC the Right Fit?
Is a HELOC right for you? It all comes down to what you are taking out a HELOC for and your financial status. If you are going to take out a HELOC for needed home repairs, then it is likely to be a smart investment; however, if you are treating your HELOC like a credit card to take a vacation, buy a car, buy a TV or get new clothes, it is an unwise investment.
Megan Dowdy Realty Can Help You to Sell Your House
At Megan Dowdy Realty, we can help you to sell your home. Maybe that process requires your making improvements to the home with a HELOC loan before you sell it. We can advise you on what enhancements could bring your home a higher sell price. If you are ready to sell your home, call us today or fill out our contact form online.
Don’t wait any longer to buy or sell, call today!