A home equity line of credit (HELOC) can be a useful way to tap into your home’s equity before you sell it. Just make sure you keep in mind the fact that you will not have that equity available to you when it does come time to sell. If you determine a HELOC is right for you, make sure you find out the answers to these important questions:
What is the initial interest rate and how will it change over the life of the term of the loan? You may be charged a low interest rate for an initial time period, after which time, your interest rate will increase, thus costing you more money. Ask your lender what to expect so you will be able to anticipate a change in payments.
Does the rate have a specified minimum and maximum? Many lenders will set a floor and ceiling for their interest rates. Ceilings protect you from surges in interest rate environments, while floors protect lenders from drops in interest rates.
What documentation do I need to provide? You will probably need to submit information about your employment history, income, assets and debts.
What is the minimum payment required each month? This information is crucial to determining your monthly budget including utilities, groceries and car expenses.
Does the home equity line of credit expire after a specified term, after which time full payment is required? Know ahead of time if the home equity line of credit expires and you must pay it back in full, so you can be adequately prepared.
When can I access the funds, do I have to make a withdrawal immediately? This will let you know can start using the money from your HELOC.
How can I access the money? You are typically given special checks that are tied to the loan account.
Do I have to maintain a minimum balance? Make sure you find out what percentage of the line of credit you can access freely.
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