In the first quarter of 2014, lenders approved $13 billion in home equity loans and lines of credit (HELOCs). Economic conditions have continued to improve, as the recession fueled by underwater mortgages gives way to rising home values across the country.
While this shift signals the beginning of a renewed confidence in borrowing against a home’s equity, homeowners should tread carefully. If you’re considering borrowing, keep in mind these facts.
- With fixed interest rates and payments, home equity loans may be a safer option. HELOCs have variable rates, so an increase may be detrimental to your payment plan.
- Lenders still require adequate income and credit, and most will set a maximum limit of 80 to 85 percent of the home’s value.
- Debtor habits can spell disaster for those who borrow equity against their home. Don’t borrow for unnecessary expenses, such as vacations.
- Homeowners should work toward paying back the loan quickly; however, it is acceptable to extend the life of the loan if making an investment in the home, such as a kitchen renovation.
