Return of the HELOC?

Return of the HELOC?


Pity the poor HELOC. Ostracized by some as demonstrating what is wrong with the American consumer, the HELOC fell out of fashion when credit tightened and the financial markets collapsed in 2008.

But, much like the fabled phoenix which rose from the ashes, the HELOC is back though not looking quite the same as it did before – yes, its wings have been singed, if not a bit clipped.

home loanHELOC Defined

Oh, what exactly is a HELOC you ask? That would be Home Equity Line Of Credit, a method for consumers to borrow money off of the value of their homes. Popularized throughout much of the past decade, HELOCs allowed homeowners to reap the rewards of their rapidly increasing home values by borrowing money to finance $100,000 kitchen renovations, enjoy expensive vacations, pay for their children’s college education, and more.

Critics hated HELOCs, blaming these types of loans with helping to push up the price of housing, encouraging predatory lenders to jump in, and putting millions of homeowners in a vulnerable position, with many people losing their homes when property values plummeted and jobs were lost.

Careless Consumers?

And you know what? The critics do have a point: a number of people were very careless, borrowing more money then they needed and foolishly spending it on stuff they didn’t need. Still, a HELOC does offer a number of benefits which is why they’re still being written by lenders and grabbed by eligible consumers.

If you’re considering a HELOC, some things HAVE changed over the past few years including:

You must have very good credit – Even if you have a sizable amount of equity in your home (and for many homeowners this no longer holds true), expect lenders to carefully look at your credit history and only offer you a HELOC if your credit score is very good.

You can’t borrow the full amount – Previously, many lenders allowed homeowners to borrow the full amount of equity in their homes. This means that if the consumer had a house valued at $300,000 and owed $220,000 on the first mortgage, then a lender would consider a $80,000 line, in some cases even more than the home’s worth. Today, you’ll be lucky to get $20,000 because few lenders are willing to let you borrow more than 80% of the value of your home.

Emergency Line

Perhaps one of the best reasons for homeowners to consider a HELOC is this one – an available line of credit to handle life’s emergencies. The last two years offered many challenges to Americans, certain thing which even worsened when funds dried up. By having access to a HELOC and using it wisely, you can borrow funds when needed to cover a crisis.

Adv. – Have you considered a HELOC? Carefully weigh your options before securing a line. Rates are low, lenders are willing and a line could help you complete important renovations to your home, including replacing your roof, windows and doors, add a room, and more. Get a HELOC quote today!


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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".