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7 Tips for Home Equity Lines of Credit (HELOC)

December 7th, 2016 9:50 AM by Sam Kader MLO# 130505

Housing prices have recovered since the 2008 housing crisis and the rise in home values seem to also be encouraging borrowing - Home Equity Lines of Credit (HELOCs). A HELOC is a convenient way homeowners can use their home's equity to renovate their home, make a large purchase or fund other needs. Here are seven tips for HELOCs: 

1) Take advantage of low rates on HELOCs - responsibly. Low interest rates along with moderate inflation is one of the factors that often leads to strong growth rates in borrowing. The different now is borrowers have to get approved for a HELOCs. In other words, borrowing rates haven;t gotten out of control like they did during the last housing bubble.

2) Make sure you can afford to pay back your HELOC. Home prices and values are increasing across the nation. In fact, many cities are seeing home prices skyrocket to levels not seen since the housing bubble. Incomes are rising as well. Plan ahead and make sure that you can pay back your HELOC when the time comes.

3) Figure out what you are going to do after HELOC resets. When HELOC resets, its draw period - which is the period of time you can borrower on your line of credit and pay interest only is ending and start paying fully amortized payment. Using home equity is a smart way but requires careful planning.

4) Review the HELOC contracts. It contains useful information such as the reset period above. Your lender will send you reminders before your draw period ends and to discuss your options.

5) Know what impact your HELOC's draw period expiration will have on your monthly payments. This requires for you to work closely with the lender and plan your budget accordingly.

6) Consider getting a fixed-rate HELOC. Rates are based on prime rates which are subject to changes in the federal funds rates. A change in the Fed rate means HELOC rates are affected as well. So, a rate hike would mean increased monthly payments for HELOC borrowers. 

7) Protect your home's value by using HELOC for home renovations. Home renovations will ensure that it will increase your home's value and thus your home's equity as well. Guidance from your lender can help you in refinancing it when it resets.
Posted by Sam Kader MLO# 130505 on December 7th, 2016 9:50 AM



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