{"id":3235,"date":"2023-09-06T04:47:10","date_gmt":"2023-09-06T08:47:10","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=3235"},"modified":"2024-04-25T23:17:33","modified_gmt":"2024-04-26T03:17:33","slug":"the-big-tease-look-out-for-rising-interest-on-a-home-equity-line-of-credit","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-big-tease-look-out-for-rising-interest-on-a-home-equity-line-of-credit\/","title":{"rendered":"The Big Tease: Look Out for Rising Interest on a Home Equity Line of Credit"},"content":{"rendered":"\n
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Once you get a deed to your own home, you have special wealth-building<\/a> powers. Pay off the mortgage faithfully month by month, and you own increasing home equity. This is how your home turns into value you can tap when you need or want it.<\/p>\n\n\n\n

A home equity line of credit (HELOC) gives you an account to tap for ongoing or surprise expenses \u2014costs like tuition, medical or accessibility needs<\/a>, starting a new business, or anything else you\u2019d like to pay for without putting debt on a credit card. You use your home equity as collateral. This means banks offer interest rates as low as 9%. That\u2019s a lot lower than credit card rates.<\/p>\n\n\n\n

While HELOC rates might start off seemingly low, they can turn into trouble.<\/p>\n\n\n\n\n\n\n\n

Know Your HELOC\u2019s Rate Cap<\/h2>\n\n\n\n

With the flexible features of the HELOC, funds can be drawn and spent as needed, paid back to replenish the balance, then drawn again. So, the credit line remains open and available until the homeowner asks for it to be closed. (As with a credit card account, HELOC credit does not have to actually be used. But whether or not the homeowner taps the funds, the HELOC is still recorded on the home.)<\/p>\n\n\n\n

A HELOC might start with a teaser rate to catch customers\u2019 attention. That\u2019s an attractively low opening interest rate that lasts for a certain length of time \u2014 perhaps one year. Later, the interest rate rises. It can change with the prevailing bank rates.<\/p>\n\n\n\n

The lender must give advance notice when it\u2019s changing the interest rate. But the best way to avoid being caught off guard? Know the limit \u2014 the cap to the rate the lender may charge. Have your finances planned so that you can manage to pay that much.<\/p>\n\n\n\n

Know your rate cap. It might be higher than you think!<\/p>\n\n\n\n

A HELOC Is Like a Credit Card \u2014 Only It\u2019s Secured by a Home<\/h2>\n\n\n\n

We all know how difficult credit card debt can be, once a borrower is in deep. And with a HELOC, a lender that doesn\u2019t get repaid can go for the struggling borrower\u2019s home. This is because the line of credit is actually recorded in the county as a second mortgage. So there\u2019s a lien on the home to represent the HELOC.<\/p>\n\n\n\n

Before taking out a line of credit, ask:<\/p>\n\n\n\n