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DOs and DON'Ts of Home Equity Lines of Credit

DOs and DON'Ts of Home Equity Lines of Credit

With Spring right around the corner, many credit union members might be thinking about cleaning house, or perhaps, renovating and improving house. A home equity line of credit, or HELOC, may be a sensible way to finance these home improvements and more. However, before delving into the world of HELOCs, it is important to determine if this is the appropriate solution to suit your financial situation and needs.

Read on to learn more about the DOs and DON’Ts of HELOCs and see if this financial tool is right for you. While it is a flexible lending option and can be a good tool for those who have equity in their home and are financially savvy, it can also be risky since failure or inability to repay what was borrowed could result in losing your home.

Home Equity Loan vs. HELOC

Prior to going with a HELOC, credit union members should understand the differences between a Home Equity Loan and a HELOC, and determine which option is better for them.

A home equity loan allows you to borrow a percentage of your home’s value, at a fixed rate and specified term, to use for various purposes. The borrower gets the money in a lump sum and uses it as their leisure, paying the same amount every month.

A home equity line of credit is simply a line of credit based on the equity you’ve invested in your home. The borrower can use money from the line as needed or all at one time by writing a check in the amount desired. Also, the interest rate on a line of credit is variable, unlike the locked-in rate on a home equity loan.

Tips on How to Wisely Use & Manage Your HELOC from Credit Unions Online

If you have decided that a HELOC is a good financing option for you, it is important to know how to use it to your advantage.

On the bright side, HELOCs generally have lower interest rates than other loans which may offset some of these other costs, and some lenders will waive certain fees or closing costs. Even better, the interest on these lines may be tax-deductible (a tax advisor should be consulted).

If you are thinking about a HELOC but have questions or concerns, there are resources available to help educate and guide consumers. Some helpful sites include and Or, you can contact your credit union’s lending department for some trusted advice and insight on obtaining and managing your future HELOC. Not a credit union member? Find a credit union and join today!

By Cyndi Cohen
Published March 6, 2012
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