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May 23, 2017

Home equity and lines of credit - Good or Bad?

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This month's infographic from CAR is all about taking out that equity in your home in the form of a Home Equity Line of Credit (or "HELOC" for short).  Home equity lines can be a great and quick way to access some of the equity in your home.  I've personally used mine twice to buy investment properties.  There are some negatives to these however, the rates are often adjustable and when you go to apply for any type of loan the banks count the HELOC against you... even if none of it is taken out!  Banks can also re-evaluate your HELOC loan and home's equity and decrease your available credit without warning.  This isn't a big problem if you don't have that much money out, but if you have more out than your new limit, it could lead to trouble.


HELOCs are great though, if you need to take out a large loan or make a big purchase and don't want to pay higher interest rates.  For example, home remodeling projects.  A new bathroom can cost upwards of $10,000 (depending on several factors).  This can quickly drain your bank account and putting any purchases on a credit card that you can't pay off each month in full is NEVER a good idea!  A HELOC can offer you a more affordable solution as they often have much lower interest rates than credit cards.  Other uses for a HELOC could be to pay off debt on high interest credit cards.  This is the same concept people have been using for years with getting a new card at an introductory rate to pay the old ones off.  One interesting use is for large purchases, such as a car.  A HELOC could have a lower rate than a car dealer's loan package, but maybe not as low as a bank or credit union.


Just remember, a HELOC is not a money printing press or an ATM.  It is a loan which must be repaid and unlike a credit card, this one goes against your house!

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