Pros and cons of a home equity line of credit

(NC) With the warm weather finally here, maybe you’re considering installing a pool or doing those home renovations you’ve been dreaming about. Perhaps you want to get away and an RV or a cottage are at the top of your wish list.

It can seem like using the equity in your home is a quick and easy way to pay for such big expenses. While you may benefit in the short term, it’s also important to consider the longer-term risks about home equity lines of credit, often referred to as HELOCs.

A HELOC is a form of credit that relies on using your home as a guarantee that you’ll pay back the money you borrow. Unlike a loan, a HELOC lets you borrow money, pay it back and borrow it again up to a maximum credit limit. The interest rates are variable and will change as interest rates go up or down.

HELOC “pros” include:
• They often offer easy access to credit.
• They have lower interest rates than other types of credit, especially unsecured loans and credit cards.
• You can pay back the money you borrow at any time without a penalty.
• You can borrow as much as you want up to your available credit limit.

HELOC “cons” include:
• It takes discipline to pay off because you’re usually required to only pay the monthly interest charges.
• Large amounts of available credit can make it easier to over-spend and carry debt for a long time.
• You may have to pay off your entire HELOC if you want to switch your mortgage to another lender.
• Your bank could take possession of your home if you miss payments.

If you decide a HELOC is right for you, make sure you understand all the terms and conditions of your product before signing on the dotted line. Take time to review and compare your options and ask potential lenders to clarify anything you don’t understand.

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