Using a HELOC as a source of emergency funds during this COVID19 epidemic, has been a topic of debate for many. Just like any other home equity loan, a HELOC has its own set of advantages and disadvantages attached to it. These and the accompanying risks are things that anyone wanting to apply for a HELOC must consider. After all, getting a HELOC means accessing one’s stash of home equity, so a misstep can result to a homeowner losing one’s home.
Why Consider a HELOC?
We are facing a lot of uncertainty these days. Even for those who may have some savings, that money can be used for other big expenses such as paying for home repairs, medical expenses, or investments; thus, leaving a homeowner with no real funds for an emergency. By having a HELOC, a homeowner can feel free to use his or her savings for things that are needed knowing that there is another source of funds should the need arise. Note though, that only a few people may consider this financial strategy out of fear that they may lose their home if they end up dipping into their HELOC for things that are not needed and may risk losing control of their finances.
Who Should Consider a HELOC as a Source of Emergency Funds?
Should homeowners in a good financial position consider using a HELOC as a source of emergency funds? Aside from the temptation of using a HELOC for non-emergency expenses, people who are in a good financial position generally are not at risk of missing mortgage payments, making them good candidates for getting a HELOC. Being in a good financial position generally means that they got more control over expenditures, so they are not likely to go on a spending spree just because a source of funds is available.
The people who should take a step back from considering using a HELOC as a source of emergency funds are individuals who are not in a strong financial position. For individuals who are already having trouble making ends meet or already have a lot of debt to the point of missing payments, a time of increased unemployment and job uncertainty may not be the best time to tap into one’s home equity. A missed payment can mean losing one’s home and an even bigger financial problem than just needing some cushion for emergency funds.
Is it Difficult to Get a HELOC?
The truth is that individuals who do not have a good credit score, do not have a steady income, and do not have a stable job will face issues when trying to get a home equity line of credit. Banks and other lending entities will be a lot stricter with approvals and might demand payment anytime depending on terms. With this said, HELOCs are a great alternative source of emergency fund for those who plan to use their savings for other things and those who do not have savings. It is just that circumstances vary from person to person and getting a HELOC is not a one-size fits all financial solution.
If you are planning to apply for a HELOC in Canada now, it will be best to consult with professionals here at Homebase Mortgages. We will assess your situation and provide you with the information you need to make an informed decision on how to best tap your home equity to meet your financial needs. Contact us today!