Tips on how to know if a HELOC is right for you


Increasing home prices are old news, meaning more borrowers are starting to consider getting a home equity line of credit.

A HELOC, however, is not the same as a mortgage loan and has a different set of requirements.

For those borrowers debating if a HELOC is right for them or if they could qualify, Mike Kinane, senior vice president of Home Equity with TD Bank, gave the following suggestions for those considering a HELOC in 2017:

1. Understand what you can afford

A HELOC serves as a convenient way for homeowners to leverage the equity in their home to fund other needs or serve as a safety net. Not only can a HELOC provide flexible funds, but also it is tax deductible, providing some financial relief each spring.

2. Determine the best loan option

Most lenders offer fixed and adjustable rate HELOCs. Your lender can explain the differences, but a fixed rate gives you the option to lock in your rate and protects you against the effects of rising prime rates, which affect variable rates on HELOCs.

3. Get approved

Shopping for a HELOC provides good reason to stay on top of all monthly obligations and make sure that there are no dings to your credit score. Consult a local Realtor or browse online to see if your home value will support a HELOC on top of your current mortgage (if applicable). Typically, lenders will extend up to 80% total of your home value in the form of mortgages and HELOCs. 

4. Devise a plan to pay it back

While a HELOC provides a shorter term, a smaller balance and more flexibility than a mortgage, it’s crucial to understand how the timeline works so you can outline an appropriate repayment schedule.

And once again, it’s important to consult a lender to discuss options and determine how a HELOC can impact your financial situation.

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