How To Safely Tap Into Home Equity During A Financial Emergency | Immovable

HELOCs, on the other hand, often require interest-only payments during the drawdown period, so minimum payments are low. Paying only the minimum does not reduce the debt, which will have to be repaid plus interest after the drawdown period ends.

“It’s so easy to get to, it can be a slippery slope,” says Watson. “It really needs to be used with care and for the proper purpose.”

A HELOC probably isn’t a good idea if you or your partner tend to max out credit cards or think either of you might be using it irresponsibly, said Blake Jones, CFP and founder of Pomegranate Financial in Springville, Utah, in an email.

Shop and read the fine print

Rates and fees vary, so compare offers from multiple banks and credit unions to get the best deal, Crider says.

Find out how the loan or line of credit works, the interest rate, how or if it will change, and any fees that apply.

For example, many banks or credit unions don’t charge an annual fee for opening the HELOC, but some do, says Jones, a former banker. You might also reconsider if you plan to move in a few years. There are often early closing fees if the HELOC is closed within a certain time after opening, he says. the HELOC or home equity loan must be paid at the closing of the sale.

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