HELOC- What is it and 3 Reasons Why NOT to do one!

HELOC- What is it and 3 Reasons Why NOT to do one!


HELOC stands for Home Equity Line Of Credit. Many banks are advertising this to home owners as a way of paying off debts by using the equity in their home. PLEASE consider the following 3 points before doing one!

1) A HELOC is interest only for the first set of 5, 7, or 10 years. The interest rates are adjustable and change and once the initial interest only time has ended, it will reset to pay off the balance at an accelerated rate making the once affordable payment become higher than what you expect! This in one of the reasons many people lost their homes in the past.

2) Do you want to use a HELOC to pay off something that will happen again? Often people will use a HELOC to consolidate car, credit card or personal loan payments thinking that by consolidating into one payment, they will improve their financial situation. What is often not considered, is that it is common before the HELOC is paid off, to re purchase a newer car and often credit cards are reused making the process of consolidation mute.

3) A HELOC is a loan on your home, but will you really receive a tax benefit? With the new tax rules and deduction limits, will you benefit on your taxes?  This is something that once used to entice people as an additional consideration, however, now it is not always as beneficial.

HELOC’s do have a place, I personally have used them in the past, let’s chat if you want some direction and suggestions!