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Home Equity Line of Credit

By Terry Savage on January 02, 2020 | Housing / Real Estate

Hi Terry,
I have a finance question I would like to run by you. My wife and I are shopping for a Home Equity Line of Credit on our home. Our home is paid off but we would like the convenience of borrowing at our lowest cost possible if we ever need access to funds (we’re aware that interest on HELOC fluctuates and you have to sure you can pay back timely).

We bank with 2 large national banks but I’m also finding articles online that some credit unions offer lower rates (our credit union does not offer HELOC). We’re thinking of reaching out to some of these credit unions since it looks easy to apply with them to ultimately apply for their heloc rates. Are you aware of any drawbacks with taking a HELOC with a credit union if their rates are lower? Any suggestions you have would be greatly appreciated.

Terry Says

Well, you are aware that you could be stuck with a rising interest rate on a HELOC. That’s the big drawback, no matter where you go. And you say you won’t use it till you need it — but your “need” will likely arise in a period when rates could be rising! Also, yu know that unless you use the proceeds to “improve” your home, the interest will not be tax deductible.
So check not only the current initial rate (which you are not using) but also the formula for future rate increases, the cap on rate increases, and any drawdown fees before making your decision. And a credit union is as good as a bank. They’re pretty easy to join these days, but most will require a deposit of some sort in an account to become a member.

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