HELOC for home remodelingWith interest rates low and home prices climbing across the nation, homeowners are once again considering the possibility of home equity lines of credit (HELOCs) — something that all but died off during the Great Recession. According to experts, the number of homeowners with more than twenty percent equity in their homes (those who are considered prime candidates for opening a HELOC, in other words) is higher than it has been in years. CoreLogic found that, last year, issued HELOCs topped $156 billion. That’s an increase of 138% since 2010. Banks are getting in on the action, sending homeowners promotional material for home equity loans. 

But, is it the right time for you to open a HELOC? What it comes down to is that there are good reasons to open a HELOC, and bad reasons to do so as well. Knowing the difference will help you determine whether a home equity loan is the right decision for you and your family. 

It’s generally agreed that opening a HELOC to make improvements on your home can be a good decision. Have a grubby bathroom, outdated kitchen, or sagging roof that could really use a pick-me-up? If the improvements are going to add even more value to your home, then a HELOC can be a great idea. The puzzle pieces should be in place before you go for a loan — you should have a stable job with steady income, have low debt, and be willing to live in your home for several years. If all these things are the case for you, a HELOC could be right for your family.

On the other hand, some homeowners get the idea of using a HELOC to pay down debt. Specifically, they use the equity in their homes to pay down credit card debt. This is almost always a terrible decision. While high-interest credit card debt can really put a beating on your budget and it can be tempting to do whatever’s necessary to get rid of it, keep in mind that the worst case scenario with credit card debt is that you end up in collections (or, it’s true, maybe in court). Credit collectors don’t have the power, however, to steal the roof from over your head. When you take out a HELOC, however, your home is literally the collateral on the loan. Are you willing to stake your home on unsecured credit card debt? You shouldn’t be. 

At the end of the day, whether or not to open a HELOC is an important question that deserves plenty of time and consideration. Take your time to do the research and explore your options before making any major financial decision, and you’ll stand a much better chance of making a good one.