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Why You Might Need a Home Equity Line of Credit And Why You Might Not Get One – AARP

A HELOC shouldn’t be treated as a piggy bank. The biggest risk is if you fail to make payment…….


A HELOC shouldn’t be treated as a piggy bank. The biggest risk is if you fail to make payments, putting you at risk of defaulting and losing your house to foreclosure. ​But it’s a good financial option, personal finance pros say, in limited situations. Tapping a line of credit may be appropriate for homeowners doing expensive renovations or improvements that allow them to stay in their homes and nest in place, especially during projects that don’t have a firm timeline. You can also use a HELOC to pay down credit card debt with much higher interest rates or as an emergency fund if a big or unexpected expense causes a short-tern cash problem. A HELOC “gives you some flexibility and options,” McBride says.​

Why getting a HELOC has gotten tougher

Although a HELOC can provide a much-needed financial safety net, getting a line of credit on your home isn’t as easy as it was before the pandemic. For one, many large banks, including Wells Fargo, JPMorgan Chase and Citi, stopped issuing HELOCs in 2020 because of economic uncertainty caused by the coronavirus, and they have yet to start offering them again. What’s more, without a steady paycheck to show income, retirees often have a tougher time qualifying for loans.

Even so, getting approved is doable. Retirees with solid credit scores and ample equity in their homes can report income from sources such as pensions, Social Security, regular retirement savings withdrawals and investment income, like rental income, explains Isabel Barrow, director of financial planning at Edelman Financial Engines. But “it may mean more hoops to jump through,” Barrow adds.

Advantages of a HELOC

A HELOC is a handy personal finance tool. Here are some ways it can help your bottom line.

Gives you access to a lump sum

Coming up with a big chunk of money for an unexpected home repair can be a nonstarter for many retirees. The cost of fixing the foundation can run as high as $40,000, a full roof replacement can be more than $11,000, and a new air-conditioning system can set you back $12,500, according to personal finance app SoFi. In 2020 the average household spent $13,138 on home repairs, SoFi says. “It’s a big chunk of change,” McBride observes. “Most retirees don’…….

Source: https://www.aarp.org/money/credit-loans-debt/info-2022/home-equity-line-credit.html

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