A HELOC is a common choice for Roseburg homeowners who are looking to make home renovations. A home equity line of credit (HELOC) can be an easy way to tap into your home equity to finance your projects. Here are 5 quick tips on how to shop for and manage a HELOC:
Getting A HELOC? Know Your Stuff…
Here are 5 things you should consider before running down to the bank and opening a HELOC.
1) Shop around. It always pays to comparison shop to get the best rate.
2) Ask about the margin. If you’re offered a rate that is lower than the competition, it might just be an introductory rate. Make sure you ask your lender about the lender’s margin.
- For example, if the introductory rate is 3.5% and your lender’s margin is 2 %, your final interest rate will be 5.5%. Make sense?
3) Ask about a conversion clause. Some, not all HELOCs allow you to convert a variable interest rate line to a fixed rate. Typically, this is done during the draw period, usually 5-10 years.
4) Watch out for balloon payments. Balloon payments mean that you must pay the balance in full when the draw period is up. This can cause stress and unwanted financial burden in the future. I would never recommend choosing a HELOC with this option unless you have the financial means to handle it.
5) Create a management plan. Decide what the money will be used for and who will handle the funds. Mismanagement of the money is one of the most common reasons people get into a financial mess, and yes, you can lose your home if the HELOC is not handled properly. It is important to think through and create a realistic payback plan.
When used responsibly, a HELOC can be a great tool to get renovations and updates completed. The key is to understand the terms of the HELOC as well as your realistic plan and ability to repay.