Milano Convertible Crib

You might be thinking of taking a home equity loan to do some home improvements or consolidate debt. Many of these equity loans come in the form of a home equity line of credit (HELOC). While often a great option for you, here are some things to ponder while deciding:

Pros

1. Take the Money As Needed

HELOCs provide you with financial flexibility and time to make smart decisions. For example, if used for long term home improvement projects, you can take the money in installments only when you need to buy more materials or pay construction costs. This is a nice alternative to lump-sum second mortgages where you take the money all at once and have to begin repaying on the total immediately.

2. Consolidate High Interest Debt

These equity loans give you the chance to consolidate much higher interest credit card debt into a lower monthly payment. This can provide you with some financial relief. When you pay enough of the equity line off, you can always take out more to tackle other needs.

Cons

1. Your House Is At Risk

Like any other lien against your property, failure to make payments can cause your home to go into foreclosure. Before consolidating debt or taking on home improvements, you will want to carefully consider whether this is a risk worth taking.

2. HELOCs Have High Variable Rates

Since secondary liens are riskier to lenders, they will charge you higher rates than on conforming first mortgages to compensate for that threat. Also, these rates are frequently adjustable rates tied to the prime rate. This can be dangerous for you, especially if you are consolidating debt and still using the cards.

These ideas should help you decide if this is the right choice for you.

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