Getting a HELOC is not as easy as it can look. If you’re a homeowner who is looking for a way to borrow against your home equity, then you should know that there are irreversible consequences that you must consider because they go hand in hand with this decision.
Know that while it is true that a HELOC is a great choice for acquiring extra funds if you own a home, it is not for everyone. The home equity loan experts at Homebase Mortgages have listed the do’s and don’ts that you must consider below if you’re planning to get a HELOC.
Don’t Use A HELOC for Unnecessary Things
Too many people make the mistake of getting a HELOC for a shopping spree that they can’t afford, a luxury vacation that they don’t need, and other possibly frivolous uses. A HELOC is a privilege granted to you with your asset as collateral so it is best to use it for things that can either improve your income potential or increase the value of your property. Examples of this include paying for higher education or investing in a home renovation. Use your HELOC wisely.
Do Have A Game Plan
Applying for a HELOC should not be taken lightly. Remember that a HELOC means putting your home and future on the line and can impact your finances for several years or more. Make sure that you thoroughly assess your current financial position and what future plans you may have.
For example, if you are planning to sell your home a few years from now, you need to be sure that you can pay off your HELOC before then. It is better to get a HELOC if you’re planning to stay in the home for the next few years so that you can enjoy the benefits of having fewer financial constraints.
Don’t Borrow More Than You Can Pay Off
It is tempting to maximize the HELOC that you can get if you’ve built quite a large home equity but know that this is oftentimes a mistake. Remember that a HELOC should not be treated as a windfall. It is a loan that will reduce the home equity that you truly own and can result in you losing your home if you are unable to meet the payment terms later.
Be sure to do the math and determine what you need to get out of having a HELOC. Stay focused and only use what you need. Do not spend on things that are unnecessary because you will have to pay for everything later including interest.
Be Mindful of How Much You Borrow
Some lenders may offer more favorable interest rates for HELOCs with higher credit limits. While it may be tempting to establish a substantial line of credit, it’s essential to exercise caution. Much like having an ample credit limit on a credit card, it’s easy to spend impulsively, eventually depleting a significant portion of your home’s equity. Regardless of the HELOC terms or the credit amount available to you, it’s advisable to withdraw only what you genuinely need and can comfortably repay.
Do Seek Additional Advice
With the above do’s and don’ts said, it is clear that getting a HELOC requires thoughtful consideration and planning. Do not hesitate to seek additional advice from mortgage experts such as Mortgage Central Nationwide based in Toronto. They will help you assess what things you truly need from a HELOC so that you can make the best home equity loan choice that is in line with your plans and needs.