Cash and debt management can be an ally or detriment to a person’s financial well-being. In today’s information age, personal finance tools are plentiful. However, many are unknown, misunderstood, or aren’t applicable to one’s lifestyle.
A constant theme we address with clients is a desire or need for improved cash flow and/or liquidity. And sometimes, little do they know, a resource may lie right beneath their feet…literally.
A Home Equity Line of Credit (a.k.a. HELOC) may be a solution to add flexibility to your cash management practices. HELOCs have been on the financial scene since the 1990s. On March 31, 2016 Forbes wrote an article titled “Your Neighbor Got a HELOC, Should You?” and stated “Over 37 million borrowers have an average of $112,000 equity available to tap in their homes…”. For some home owners, putting this equity to use could provide multiple benefits. Let’s explore a few and don’t worry, it’s not a one-sided conversation – we will examine the disadvantages as well.
Benefits of a HELOC:
Okay, now, this concept is not for everyone and can’t be the “fix all” solution. As Yoda might say (there’s a new Star Wars movie out) “Financial restraint one must have” (just imagine Yoda saying that – AWESOME!). Without constant discipline, problems could appear. Remember, this is like having one HUGE credit card and behind that card there are doors, windows, and a roof. With that said, let’s look at some disadvantages.
Disadvantages of a HELOC:
We understand the advantages and disadvantages, but what do institutions consider when determining approval for a HELOC?
Financial institutions have multiple risk assessments depending on the organization. Commonly, the following may be considered:
As one can see, there are multiple advantages and disadvantages to HELOCs and they are not the right fit for every situation. If you feel you could benefit from a HELOC, please feel free to contact us. We would be happy to explore this concept in great depth and assist in concluding whether this is an appropriate option for you and/or your household. Some institutions, from time to time, are willing to open a HELOC and waive the closing costs discussed earlier. If there is value in having a HELOC, we can point you in the right direction of competent, trustworthy bankers.
 If LBW refers clients or prospects to professional contacts such as a personal banker, LBW does not receive any compensation for referrals from such professionals.