E Transcon

Main Menu

  • Unsecured Personal Loans
  • Fixed Rate Loans
  • Variable Rate Loans
  • Debt Consolidation Loans
  • Capital

E Transcon

Header Banner

E Transcon

  • Unsecured Personal Loans
  • Fixed Rate Loans
  • Variable Rate Loans
  • Debt Consolidation Loans
  • Capital
Unsecured Personal Loans
Home›Unsecured Personal Loans›Why taking out a HELOC could be dangerous this year

Why taking out a HELOC could be dangerous this year

By Mary M. Cox
June 29, 2022
0
0

Image source: Getty Images

You might want to go a different route.


Important points

  • HELOCs are known for their flexibility and qualifying for them can be fairly easy.
  • Despite these benefits, you need to be careful if you plan on taking out a HELOC in the near future.

Homeowners in the US are sitting on a lot of equity these days. That’s because property values ​​have risen significantly over the past year, and that gives homeowners an opportunity to borrow money for their homes.

If you need money, you might consider taking out a home equity line of credit, or HELOC. And there are advantages to going this route.

With a HELOC, you are not limited to a single lump sum to borrow. Rather, you get access to a line of credit that you can draw on for a longer period of time – sometimes up to 10 years.

Also, HELOCs are fairly easy to qualify since they are backed by the equity you have in your home. If you take out an unsecured loan such as For example, a personal loan, your lender can really only rely on your creditworthiness and history when deciding whether to lend you money.

But while HELOCs certainly have their advantages, there is a major downside to taking out a HELOC. And it might hit you especially hard this year.

Rising rates spell trouble for HELOCs

While HELOCs offer a lot of flexibility, they typically don’t offer fixed interest rates on the amount you borrow. Rather, HELOC rates tend to be variable, which can cause your monthly payments to change over time.

When your payments skyrocket, it can be difficult to keep up with them. And if you default on your HELOC payments, you risk consequences like damaged credit ratings and the possibility of losing your home.

Meanwhile, the Federal Reserve is pushing ahead with a series of planned rate hikes to curb inflation. And that could make any type of variable-rate loan or line of credit more expensive in the coming months.

That’s why you should be really careful when taking out a HELOC. You might like the idea of ​​being able to draw a line of credit at multiple times while borrowing a lump sum on a home or personal loan. However, with interest rates likely to continue to rise, taking out a HELOC could mean very expensive payments down the road.

A better way to borrow money now

If you need to borrow money, taking out a fixed rate loan can really pay off. If your credit is good, a personal loan could be a smart choice. But if your credit isn’t the best, then a home equity loan could result in a lower interest rate, since your lender could overlook less than great credit (at least to some extent) if you have a lot of equity in your property.

Regardless of which credit route you choose, it’s obviously a good idea to keep this amount to a minimum. And that’s another danger of HELOCs. While they offer flexibility, it can be tempting to tap into a HELOC when that line of credit is in place. But the ease with which you can access that money could lead you to borrow for the wrong reasons. So, given that and the potential for higher interest rates, it could really pay off to stay away from a HELOC in the short-term.

The Best Personal Loans of Rise for 2022

Our team of independent experts have scoured the fine print to find the handpicked personal loans that offer competitive interest rates and low fees. Start reviewing The Ascent’s best personal loans for 2022.

Related posts:

  1. NBFC records new growth with increase in gold and diamond lending, in conversation with Mr. Meghraj Jain, Managing Director of Mangal Credit and Fincorp Ltd
  2. Gold sets to rise as stress hits households – The New Indian Express
  3. Update: The Growing Wave of PPP Loan Prosecutions | Arnall Golden Gregory LLP
  4. Consolidating High Interest Debt Could Save You Money – Here’s How

Recent Posts

  • Large lenders cut fixed rates despite Reserve Bank of Australia rate hikes
  • Student loan refinancing rates are falling for 5-year adjustable rate loans
  • Are Federal Student Loans Even “Loans”? From leniency to forgiveness to taxpayer spending. Fairer: allow bankruptcy
  • No mortgage? Therefore, you should still watch out for rate hikes
  • China has lent Pakistan $21.9 billion in short-term loans since 2018: report | world news

Archives

  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • October 2020

Categories

  • Capital
  • Debt Consolidation Loans
  • Fixed Rate Loans
  • Unsecured Personal Loans
  • Variable Rate Loans
  • Terms and Conditions
  • Privacy Policy