Should you get a HELOC in 2022?

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A HELOC could give you flexibility in borrowing money, and now is a great time to get one.

Key points

  • Home equity levels in the United States recently hit an all-time high.
  • It might be pretty easy to qualify for a HELOC in 2022.

Perhaps you have been delaying repairs to your home for a while due to a lack of funds. Or maybe you’re hoping to take on a big remodel project, like remodeling your kitchen and finally getting rid of those lime green appliances that haven’t been replaced since the 1970s.

Whatever specific scenario you face, if you need the cash to meet a major goal in 2022, it might pay off to access it by borrowing against your home. If you’re going to take this route, a HELOC could make a lot of sense.

What is a HELOC?

A HELOC, or Home Equity Line of Credit, gives you access to a line of credit that you can draw down for a specific period of time – typically five to 10 years. The interest you will pay on a HELOC is generally variable, but it is also generally lower than what you would pay if you were to take out another type of loan. HELOC interest rates tend to be much more competitive than what a credit card will charge you.

You also get flexibility with a HELOC. Say you are embarking on a major renovation project. You may have used the numbers to estimate what it will cost, but until you dive in, it can be difficult to pinpoint an exact number.

The beauty of a HELOC is that you don’t have to commit to a specific loan amount. If you think you need to borrow between $ 20,000 and $ 30,000, you can apply for a $ 30,000 HELOC and borrow only as much as you need. If it turns out that you need $ 25,000, you leave the $ 5,000 that you don’t need intact, and then you won’t have to pay it back or earn interest on it.

Qualify for a HELOC in 2022

To be eligible for a HELOC, you must have equity in your home. Equity refers to the part of your home that you own in full, and it’s calculated by taking the market value of your property and subtracting the balance you owe on your mortgage. If your house is worth $ 400,000 and you owe $ 300,000 on your mortgage, you have $ 100,000 in equity left.

Recently, home equity levels hit a record high of $ 9.4 trillion nationally, reports data firm Black Knight. And on a per borrower basis, the average homeowner now has $ 178,000 in equity. It should be fairly easy for many owners to qualify for a HELOC in 2022.

But still, there are a few pitfalls you might run into if you take this borrowing route. First, because a HELOC can be quite easy to qualify in the short term, you might be tempted to borrow more than you really need. But remember that any funds you withdraw from your HELOC will accrue interest and need to be repaid. If you fall behind on these payments, you could risk losing your home, as your property itself serves as collateral for your HELOC.

In addition, the interest of HELOC is generally variable. This means that during the repayment of your HELOC, your monthly payments may increase over time, making them more difficult to keep up.

Nonetheless, if you need to borrow money, a HELOC could be a great option as long as you understand the risks involved. This especially applies at this time, as you may have more equity in your home than in the past. And to be clear, you don’t need to purchase a HELOC just for the purpose of renovating or repairing your home. While these are common reasons to get one, you can actually use your HELOC funds for whatever reason you want.

A historic opportunity to potentially save thousands on your mortgage

There is a good chance that interest rates will not stay at multi-decade lows any longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger to buy a new home.

Ascent’s in-house mortgage expert recommends this company for a low rate – and in fact, he’s used them for refi himself (twice!). Click here to find out more and see your price. While this does not influence our opinions on the products, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full advertiser disclosure here.

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