7 Questions to Ask First
If you would like to consolidate debts, make improvements to your home, or cover a large unexpected expense, you may want to explore a home equity line of credit. A “HELOC,” as it’s known, enables you to borrow against a portion of the equity in your home as needed.
Before doing so, here are seven questions to consider.
Are you sure you need to borrow?
Borrowing money is so common in our culture that it seems normal. While the Bible does not prohibit borrowing, it cautions that debt can become an undue burden. Proverbs 22:7 says, “…the borrower is servant to the lender.” Borrowing is best done with caution and only after exploring other options. For example, could you wait until you have enough money saved to pay cash for the expense that you have in mind?
Have you explored all of your borrowing options?
How did you decide that a home equity line of credit is the best option? Have you explored personal loans or a home equity loan? Would the terms be more favorable with a different type of loan?
Do you understand all the terms of the agreement?
As with all loans, a HELOC comes with some very specific rules and regulations. Some typical HELOC terms include: Minimum and maximum loan amounts (HELOC’s typically specify both), draw period (the time frame when you are allowed to borrow money), repayment period (the amount of time you are allowed to repay the money), interest rate (it’s usually variable; what’s the current rate and how high could it go?), fees (even if you don’t borrow, there will probably be a fee for maintaining the line of credit), and more (HELOCs come with some unique features, such as the freedom to pay just the interest on money borrowed during the draw period).
Are there other lenders with better terms?
It is generally best to talk with three lenders and compare terms, starting with your mortgage lender. Which one has the lowest fees and best interest rate? Are there any other terms that make one lender more favorable than another?
Will you be able to afford the payments?
How much do you plan to borrow through a HELOC, and what will your monthly payments be? If you don’t know for certain, consider the highest amount you might borrow and determine the monthly payment. How will that bill impact your ability to give, save, and invest?
Do you understand the risks?
The biggest risk with a HELOC is that your house serves as collateral for the loan. If you don’t repay, your home could be repossessed.
If you are married, are you both in agreement about obtaining a HELOC?
Debt is a common cause of stress between husbands and wives. If you are married, before proceeding with a HELOC, make sure you both understand and are in agreement about all of the above.
Click here to learn more about obtaining a HELOC from CCCU.
Matt Bell is the author of Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management. He speaks at churches and conferences throughout the country and writes the MattAboutMoney blog.
This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.
