A home equity line of credit (HELOC) is a great way to get your hands on money in a hurry. As long as you have equity in your home, there is not much fear of being denied.
Despite the fact that getting your hands on this money may be an easy process, it doesn’t mean you should actually move forward. There are five reasons why avoiding a home equity line of credit may be in your best interest:
- Unstable income. If you don’t know where your next paycheck is coming from, maybe because you work as a contractor, a HELOC is not the best idea. In the event you are unable to keep up with the payment, the lender could begin the foreclosure process.
- You don’t want to (or can’t afford) the fees. Depending on the lender, it can be expensive to obtain a HELOC. There are fees and upfront costs to think about.
- You don’t need that much money. A HELOC is often a good idea if you need a large sum of money all at once, such as to complete a home renovation. If you only require a small amount of money, you should probably turn to your emergency fund or a low interest credit card.
- You are scared of an interest rate increase. Unless you have a fixed rate line of credit, an interest rate increase could come into play at some point. This is something to consider before you sign on the dotted line. Make sure you are comfortable with the current rate, as well as the “cap” set by the lender.
- You don’t really need the money. The idea of a HELOC may excite you. After all, who doesn’t want access to extra money? But remember this: the money is not free. You are borrowing against the equity in your home, while also paying interest. If you don’t need the money right now, forget about a HELOC for the time being.
These are some of the many reasons to avoid a home equity line of credit. Now, here is the next big question: what are some of the top reasons to apply for a HELOC?Test