Should I Tap Into My Home’s Equity?

Before obtaining a home equity loan or applying for a line of credit (HELOC), first determine if you have enough equity, then consider the pros and cons before making your final decision.

Estimating Home Equity

• Begin by finding comparable homes in your area – those that are roughly the same age, square footage, amenities and construction type.
• Examine recent sales data, which is typically available via the local clerk of the court, property appraiser or real estate agent.
• Have your home appraised. An appraiser will take into consideration the land, location and surrounding area in addition to the overall appearance of the home.
• You may also use an online home equity loan calculator.

Benefits of a HELOC

You may benefit from a home equity loan or HELOC is you can say “yes” to the following items:

• My credit is good and I qualify for favorable rates.
• I have equity in my home to draw upon in a time of need.
• I carry a very low deductible on my homeowners insurance and my rates have increased. Some homeowners find it beneficial to increase the deductible on their insurance policy and keep a HELOC available in the event of emergencies.
• I sporadically need large sums of money for short periods of time. For example, to fix up a project and then resell it.
• I currently rely upon high interest credit cards or other loans for short-term or revolving loans.

 

Questions to Ask Before Obtaining a HELOC

Use this checklist to make sure you have asked the pertinent questions when shopping for a HELOC:

• Is there a pre-payment penalty? If yes, what are the terms?
• What is the draw period and is an initial draw required?
• Is there a monthly or annual limit on the number of draws?
• What is the minimum draw amount?
• What methods are acceptable for accessing funds (debit card, checkbook etc.).
• What are the total fees and costs?
• How frequently can the rate adjust?
• What is the interest rate cap?
• What triggers a demand for payment in full?
• Are there transaction fees and if so, how much?

 

When Not to Tap Home Equity

Properly used, home equity loans or a home equity line of credit can be powerful tools. But there are times when it makes more sense to resist the urge to tap into home equity. Before making a final decision, be an informed consumer and understand the consequences to your financial planning. If you answer “No” to any of these items, now might not be the right time to tap into your equity.

• You live in an area with stagnating or depreciating home values.
• You intend to sell your home.
• You intend to buy another home or obtain financing in the near future.
• Your personal or financial situation is not stable.

If you have any questions about accessing your home’s equity, call me at 317.777.1805 or email me at Scott@LacySells.com.