Pros And Cons of Getting a HELOC

Like any type of loan, there are pros and cons that borrowers may see when accessing their HELOC funds. 

Pros and cons for a home equity line of credit, or HELOC, can vary based on borrower needs, financial situation and uses for their HELOC funds.  

To see how a HELOC could work for you, talk with a Loan Officer when you begin your HELOC application. 

There are many benefits borrowers see with their HELOC. Here are some of the HELOC benefits you could notice. 

The funds you get from your HELOC can be used however you may need them. There are no requirements or restrictions on what your HELOC funds can be used for, so whatever expenses you may have, your HELOC is there to help. 

Many borrowers use their HELOC funds for home improvements or repairs. This is one of the smartest uses of your HELOC as home projects could boost your home equity. Other popular ways borrowers choose to use their HELOC funds are for consolidating debt, easing the cost of education or helping with emergency expenses or bills. 

One of the biggest benefits of borrowing money with a HELOC is that the interest you pay on your loan amount could be lower than the interest on other types of second loans. 

Thanks to HELOCs being secured loans, interest rates tend to be lower than unsecured loans, such as a personal loan or credit card. Lower interest rates could mean paying less over the life of your loan when borrowing money. 

Those looking for access to funds quickly will be happy to know that some lenders, like Rate, can give you access to your HELOC amount as soon as five days* after applying, with Rate’s HELOC application taking as little as five minutes to complete. 

And while you are in your draw period, you will have access to your entire loan amount for any unexpected expenses that may arise. 

While the money you use to pay down your HELOC principal is not tax-deductible, the interest you pay might be deductible, depending on how you use your funds. 

Some interest paid on your HELOC could be tax-deductible if you are using your HELOC funds for home improvements. To take advantage of these tax deductions, make sure you consult a tax expert to see if any home projects you have planned may qualify. 

Unlike other loans where you may be required to pay interest on your total loan amount for the life of the loan, HELOCs typically only have you paying interest on the loan amount you use. 

Only paying interest on what you end up using could save you money as you won’t have to pay interest on funds that just sit in your account**. 

Here are some of the drawbacks borrowers might see with their HELOC. 

Since HELOCs could give you access to more money than you need, some borrowers end up spending the extra money available. All your HELOC money is available for you to use as you see fit, but you will have to pay interest on all the money you use. So, overspending might end up costing more in interest over the life of your HELOC. 

Of course, the risk of overspending with a HELOC only arises if you do not need to use your full amount. 

Similar to other kinds of loans, HELOCs also tend to come with closing costs you will have to cover before gaining access to your funds. 

Your closing costs typically range from 2% to 5% of your HELOC amount. Your closing costs will cover some of the expenses that come with setting up and servicing your HELOC. These closing costs will cover things like a home appraisal, origination fees and title servicing. 

Some lenders do offer HELOCs without closing costs, but these could come with slightly higher interest rates. And some lenders might let you roll your closing costs into your loan balance. 

HELOCs are a secured loan, which means your home will be used as collateral for your loan. 

Because HELOCs are a secured loan, you will tend to get lower interest rates than unsecured loans. However, since these loans are secured by your home, if you default on your payments, you can risk foreclosure on your home. 

Depending on the lender you choose, your HELOC might come with variable interest rates. That means your interest rates will change based on where current HELOC rates are at.  

While variable interest rates mean that your interest rate could drop with the market, you risk the chance of your rates rising. More than that, variable interest rates can make planning and budgeting for your payments hard. 

It is a good idea to get a HELOC whenever you need access to funds. HELOCs offer borrowers access to funds quickly for any expenses they may have. 

If you have any emergency repairs or bills, it might be a good idea to tap into your equity and help relieve the stress that may arise with those costs.  

If the expenses you have are not time-sensitive, you might want to wait until mortgage rates are at an affordable level for you. To get an idea if it is the right time for you to get a HELOC, you can use an online HELOC calculator to see what your HELOC could look like. 

Applying for a HELOC is one of the benefits as the application can be completed in as little as five minutes with a trusted lender like Rate. 

When you start your HELOC application, you will be connected with a professional Loan Officer who can help you through the application process and answer any questions you may have. After your application is complete, you could gain access to your HELOC funds in as little as five days. 

Start your HELOC application to gain access your funds and see all the benefits for yourself! 

_{*Applications may be completed in five minutes but may fluctuate. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing. In addition, funding timelines may be longer if we cannot readily verify that your property is in at least average condition with no adverse external factors with a property condition report and may need to order a desktop appraisal to confirm the value of your property. Texas borrowers will have a 12-day cooling period prior to closing on their home equity loan which will begin after the borrower has both filed a loan application and received consumer disclosures.} 

_{**Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.}