As more banks push home equity lines of credit (or HELOCs) to homeowners whose properties have regained much of the value they lost during the housing crash, Kerry Hannon, in a post for Next Avenue, offers some cautionary advice for home owners to consider before signing on the dotted line.
First off, she writes, be careful about what the home equity line will be used for. It’s seductive to tap the equity for a renovation or a vacation of your dreams. But, Greg McBride, Bankrate.com’s chief financial analyst, cautions: “The usual caveats apply about not borrowing for consumption items — like vacations or new toys — and understanding that the collateral is your ownership stake in the home, making the consequences of default significant.”
She also suggests scrutinizing the cred line’s terms and interest rate since they can vary dramatically among banks, credit unions and mortgage companies. Lastly, have a place in place to pay it back.