Learn how HELOCs work and how to use one wisely.  

One of the advantages of having home equity is that it gives you the option to tap into cash. If you’re considering a home equity loan or line of credit (HELOC) here are some things to consider.

How much cash can you tap?

Lenders will generally allow homeowners to borrow up to 85% of their home equity. Equity is calculated as the difference between the home’s value and the mortgage balance.

In some cases, homeowners are considered “upside down,” which means they owe more than the home is worth and they don’t have any equity to tap into.

Choosing how to use home equity loans wisely

While home equity loans can be used for anything, many people put personal parameters on how they’ll spend the funds. Spending home equity funds on home improvement projects makes sense when those projects add to the home’s value. Avoiding higher-cost debt? Often a good move. A trip to the casino? Not so much.

Your home is collateral for the loan

A home equity loan uses your home as collateral. This means if you default on the loan, you could face foreclosure. This is why it’s important to carefully consider how you’ll use the funds.

How a home equity loan affects your financial standing

When you borrow money the activity is reported to the credit bureaus, and this could affect your credit score. Don’t be surprised to see your credit score drop when you take on a home equity loan. On the flip side, regularly making payments on-time will help improve your credit score.

Home equity loans also need to be factored into your monthly budget. Keep in mind that if you have a loan with a variable interest rate, your home equity loan costs can increase. Also, if you have an interest-only loan and only pay the minimum, you may face a large repayment later.

While home equity loans are fairly easy to secure and make sense for many homeowners, only you can determine if one is right for you. If it is, Consumers is here to help you access cash when you need at a competitive rate.  View rates and apply now.

Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.