Pros
- Flexibility: You can use as much or as little money as you need, and can draw it whenever you need it. That’s ideal for long-term renovation projects, where you typically pay contractors at set intervals.
- Limited interest: You are only obligated to repay the amount of the credit line you have utilized, and you only pay interest on the amount you’ve withdrawn.
- Suitable for the unpredictable: HELOCs can be ideal if you’re unsure how much your projects will ultimately cost or how long they’ll take. Since the balance is replenishable, you’re less likely to fall short in case of cost overruns, too.
Cons
- Variable interest rates: The interest rate will fluctuate, affecting your monthly payments and potentially leading to increased costs. If your project’s dragging on and interest rates rapidly climb, as they did in 2023, repayments could get expensive.
- Big debt burden: Since you can borrow from your HELOC multiple times and typically don’t have to start repaying the principal immediately, it can be easy to accumulate a big balance and encounter sticker shock when payments start including both interest and principal.
- Annual fees: Many lenders charge an annual fee to maintain an open HELOC account, regardless of whether you use the line of credit.