Are you planning a major renovation in your home, or is it one of the emergency fixes that cannot be overlooked anymore? A Home Equity Line of Credit (HELOC) may be one of the first options for you to consider.
While you may know many people who rely on HELOC to get access to the funds using the equity you’ve built in your home, you cannot overlook the risks.
Before you choose a HELOC, you must understand the pros and cons of this approach. Keep on reading to learn all you need to know about HELOC.Â
Pros of a HELOC
Many people around the world benefit from HELOC every day. Here are some of the pros you can consider.
Unmatched Flexibility
One of the most common reasons why people choose a HELOC is flexibility. You can borrow whatever you need and whenever you need it, which makes it an ideal option for unpredictable times. According to the experts at Amerisave, HELOC can provide you with financial flexibility during the times when you need it the most.Â
Reduced Interest Rates
Another reason why you may want to consider a HELOC is the reduced interest rates.
The reason why a HELOC comes with lower interest rates is that it is secured by the home. Unlike other forms of debt, such as credit cards, it is relatively more secure.
Lower Expenses
HELOCs have a draw period. During this time, HELOCs require interest payments only. This means that you do not have to worry about making high payments in the early period. In fact, your monthly expenses are likely to be very low.
Reusable Credit
Once you have repaid your balance, your credit becomes available to you once again. This means that if you ever need your credit again, you do not need to reapply. This makes a HELOC a reusable financial resource.
Cons of a HELOC
All the benefits of a HELOC may convince you enough to make your decision. However, before you rush, it is best to consider the cons of HELOC as well.
Varied Interest Rates
While the interest rates may be low, you must remember that HELOCs come with variable interest rates.
This means that your monthly payments can rise if the rates increase. In such circumstances, unpredictability can be hard for most users to manage.
Increased Risk
When relying on HELOC, your home works as collateral. If you are unable to make your timely payments for any reason, you may put yourself at risk of losing your home, which can be a significant loss for anyone.Â
Possibility of Overspending
Accessing a HELOC can be a very hassle-free process. Even the people with the most self-control are at risk of overspending when they have easy access to funds. If you are not financially organized, you may end up in more debt than you anticipated.
Additional Costs
If you are lucky enough, you may only need to deal with low or no closing costs. However, there are some additional fees that may be mentioned in the fine print at times.
Therefore, it is always recommended to go through the terms and conditions and look for additional fees such as appraisal fees, early termination fees, and more.
