NEW YORK (MainStreet) -- Despite some $265 billion in home equity lines of credit being taken out between 2005 and 2008, so-called HELOCs are still up 81% from 2010 to the end of 2014, according to a recent report from Experian.
Experian views that trend in a "good news, bad news" way. "This could be a sign of the economy further recovering, yet there are still concerns about the pre-recession HELOCs that are now in repayment and how that could negatively impact consumers and the economy as a whole," says Michele Raneri, Experian's vice president of analytics and business development.
If you're mulling over a home equity line of credit, the watchword in 2015 is "caution," as making a wrong move or two can really mess up your household finances. Adding any debt, especially $30,000 to $50,000 in debt to your financial picture, with fairly high interest rates attached, is a risk no matter how you slice it.
Still, consumers are lining up to get them anyway.
"I'm seeing requests for HELOCS more and more, so the issue is timely," says Casey Fleming, a Silicon Valley-based mortgage advisor. "But you've got to be careful."
Job one for HELOC consumers is to watch out for "intro" rates, Fleming says. "Unless you plan to use the line only briefly and then close it, the intro rate isn't nearly as important as the contract rate," he says. Expect to pay about 4.50% interest on a $30,000 home equity loan, although the rate will vary from bank to bank.
HELOCs are almost always based on the prime interest rate plus a margin, Fleming explains. "The margin is defined in your contract, and it determines your interest rate every month," Fleming adds. "So ask your lender what the margin is after the intro period when comparing offers."
Also, make sure you include a tour of online lenders before you make any decisions. "Shopping online will probably not give you the best deal, but it will give you excellent bench marks to use when you shop," he says. "Small community banks and credit unions usually have the best rate possible."
The way you use a HELOC also factors in to any decision to try and land one. For example, using a home equity loan to fund home improvements that will add value to your home is a smarter choice versus an expensive vacation, shopping trip or new car, says Johnna Strahle, manager of equity processing and closing at Navy Federal Credit Union.
"Home equity lines of credit can be used for a variety of reasons -- including home improvements, education expenses, debt consolidation and unexpected expenses," Strahle adds. "I recommend consulting with a real estate professional to find out which home improvements will add the most value in your area."
Don't expect to have any luck slashing interest rates with a bank or lender. "Fixed equity loan and home equity line of credit rates are not negotiated," Strahle adds. "Rates are based on the member's credit history, occupancy and combined loan-to-value ratio."
There is value in grabbing a HELOC, especially when you use the money to add value to your home. But don't grab so much that it cuts into your savings, or can't be paid back. No loan is worth that kind of trouble.