Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
When you take out a HELOC, you open up a revolving line of credit from your mortgage lender where your home serves as collateral. Lenders typically set your credit limit by taking a percentage of your home’s appraised value and subtracting the balance of your existing mortgage. Unlike a home equity loan, where the borrower receives a lump sum, a HELOC is available when you need it, similar to a credit card.
Equifax data shows that many consumers are using HELOCs. More than $120 billion worth of HELOCs were originated in 2014, a year-over-year increase of 21.5 percent—and the trend is expected to continue.
If you’re one of the many consumers considering using a lower-interest HELOC to pay off high-interest debt, such as credit card debt, here are a few things to consider.
Revolving credit with a low interest rate. Because a HELOC is secured against the property, it typically carries a lower interest rate than unsecured debt, such as credit cards. Taking out a loan, such as a HELOC, to pay off credit card debt could save you money on interest and lower your monthly payments.
Fewer creditors to pay. If you have multiple credit cards with outstanding balances, a HELOC could help you simplify your bills. You will be able to use the financing from the HELOC to pay off your credit card debts. Instead of paying several creditors each month, you would make an extra payment to your lender to repay the HELOC.
Tax deductible. The IRS allows you to claim the interest you pay on a HELOC as a tax deduction if the size of your HELOC is less than $50,000 (or $100,000 for couples filing jointly).
Loss of the home if the debt goes unpaid. After you pay off your credit card debt, you still have to pay back your lender. Your interest rate may be lower, but if you are unable to pay off the HELOC, the lender may be able to force you to sell your home to satisfy the debt.
Principal lingering after repayment. Some repayment plans set a minimum monthly payment that includes a portion of the principal (the amount you borrow) plus accrued interest. However, the portion of that set payment that goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment of interest only during the life of the plan, which means that you will pay nothing toward the principal. For example, if you borrow $10,000, you will owe that full amount when the “repayment” plan ends—and you could be forced to pay it all at once.
Risk if the home depreciates in value. Homeowners never want their mortgage to be under water, meaning they owe more money than the house is worth. To avoid this, lenders require homeowners to maintain a certain level of equity. For instance, some lenders might require homeowners to have at least 10 percent equity in their home after taking out a HELOC, so the most they can borrow is 90 percent.
Take time to shop around for credit terms that best meet your borrowing needs, as a HELOC could include extra fees, such as property appraisal fees, application fees, and closing fees. Additionally, HELOCs often have variable interest rates, so be sure to understand how high your monthly payment can go before you make a decision.
Finally, be sure the HELOC isn’t just a temporary fix. If you use it to pay off credit card debt but don’t change your spending habits, you could end up in a worse situation than before. You may want to speak with a HUD-approved housing counselor or a financial advisor before taking out any equity in your home.
Susan Johnston has covered personal finance and business for publications including Bankrate.com, The Boston Globe, Entrepreneur.com, Learnvest.com, Mint.com, and USNews.com. Find out more at www.susan-johnston.com.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.