Homeowners looking to undertake home renovations can often use a home equity line of credit or HELOC to finance their projects, however, before starting your renovation we recommend shopping around for your areas best companies. Here are six quick tips on how to shop for and manage a HELOC:
Shop around. Comparison shop to get the best rate. There is no one set guide to home improvement projects for increasing your resale value that will always work for everyone, what you require to best suit your needs might not be the same as your neighbor. Know your house, your families wants and your financial abilities to pay back before you fall in love with a proposal you can’t live with.
Ask about the margin. If you’re offered a rate that’s lower than the competition, it’s probably just an introductory rate, so ask about the lender’s margin. For example, if the introductory rate is 3.5 percent and your lender’s margin is 2 percent, your final interest rate will be 5.5 percent.
Consider a conversion clause. Some HELOCs allow you to convert a variable interest rate to a fixed rate, usually during the draw period (5-10 years).
Watch out for balloon payments. Balloon payments mean that you must pay the balance in full when the draw period is up. Do not choose this option unless you have the financial means to handle it.
Create a family plan. Decide what the money will be used for and who will handle the funds. Keep in mind, you can lose your home if the HELOC is not handled properly. Create a payback plan. Come up with a reasonable plan for how the loan will be paid back.