Have you heard the term HELOC when referring to homes?  Do you know what it means?  It refers to Home Equity Line of Credit.  Basically, it’s a loan that is secured by the equity you have in your home.

Equity is the difference between what your home is currently worth and how much you owe on it.  For example, your home is worth $250,000 and you owe $200,000.  You have $50,000 worth of equity.  So, if you opted to get a HELOC loan, they might approve you up to $50,000. 

Once approved, you can take out a loan, pay it back, then take money out again.  There’s usually a timeframe within which you have to pay the money back. And, of course, you pay interest on the money you’ve borrowed.  Having said that, the interest rate is usually lower than using a credit card or personal loan.

On the flip side, you might incur a variable interest rate which could make your payments increase.  And, if you can’t pay the loan back in the prescribed amount of time, you could lose your home.  To me, that’s the biggest drawback.  Remember, you home is probably your biggest investment and you don’t want to put it in jeopardy for any reason.

People used them for all kinds of things like home remodels, college tuition, etc.  Am I a fan?  No.  Any time you put your home at risk with a loan of any kind, I’m not a fan.

Moral of the story:

Please never put your home at risk with a HELOC or any other type of loan.  If you want to use the money for something, take the time to save it up and pay for it.  It’s a lot safer that way and your largest financial asset isn’t at risk.