ConsumerLatest.comA HELOC can be an incredibly useful financial tool. It can also become an expensive mistake if you don't know what you're getting into.
After talking to dozens of homeowners who've used home equity lines of credit, some successfully and some disastrously, clear patterns emerge. Here are the mistakes that cost people the most money, and how to avoid them.
Mistake #1: Not Shopping Around
This is the most common and most costly mistake. Many homeowners simply go to their current mortgage lender or bank and accept whatever terms they're offered.
The difference between lenders can be staggering. I've seen rate differences of 1.5% or more for borrowers with identical credit profiles. On a $50,000 HELOC, that's an extra $750 per year in interest you're paying for no reason.
Fees vary wildly too. Some lenders charge application fees, annual fees, early closure fees, and inactivity fees. Others charge none of these. When comparing options through services like [HELOC OFFER NAME/LINK], make sure you're looking at the total cost of the loan, not just the interest rate.
Mistake #2: Ignoring the Variable Rate Risk
Most HELOCs have variable rates tied to the prime rate. When the Federal Reserve raises interest rates, your HELOC payment goes up. When they lower rates, your payment goes down.
The mistake isn't choosing a variable rate product; it's failing to budget for rate increases.
I spoke with one homeowner who opened a HELOC in early 2022 when her rate was 4.5%. By late 2023, that same HELOC was charging 9.5%. Her monthly payment nearly doubled, and she hadn't planned for that possibility.
Before taking out a HELOC, calculate what your payment would be if rates increased by 2%, 3%, or even 4%. Can you still afford it? If the answer is no, you might be borrowing too much.
Mistake #3: Using It Like a Credit Card
The flexibility of a HELOC can be its biggest danger. You can draw funds whenever you want, pay them back, draw again. It's almost too easy.
Some homeowners start using their HELOC for everyday expenses. A vacation here, a new TV there, gradually drawing more and more until they've maxed out their line without anything meaningful to show for it.
Unlike credit card debt, HELOC debt is secured by your home. Treating it casually can have serious consequences.
Mistake #4: Forgetting About the Draw Period End Date
Here's something that catches many homeowners off guard: most HELOCs have a draw period (typically 10 years) followed by a repayment period (typically 20 years).
During the draw period, many HELOCs only require interest payments. Once the repayment period begins, you're suddenly paying principal plus interest, and your payment can jump dramatically.
I've seen cases where someone's $200 interest-only payment became a $600 principal-and-interest payment overnight. If you're not prepared for that shift, it can wreck your budget.
Some lenders offer HELOCs with different structures when you explore through platforms like [HELOC OFFER NAME/LINK], including options to pay principal from the start, which prevents this surprise.
Mistake #5: Borrowing the Maximum Available
Just because you're approved for $100,000 doesn't mean you should take $100,000. Lenders approve you based on what they think you can technically afford. That's not the same as what you can comfortably afford while still meeting your other financial goals.
A good rule of thumb: only borrow what you have a specific plan to use. If you need $40,000 for a kitchen renovation, don't draw $60,000 "just in case." You'll pay interest on money you didn't need.
Mistake #6: Not Understanding All the Fees
HELOC fees can include application fees (some charge $300+), appraisal fees ($400-600 is common), annual fees ($50-100 per year), early closure fees (if you close the line within 2-3 years), and inactivity fees (if you don't use the line).
Some of these fees are negotiable. Some lenders waive them entirely. But you won't know unless you ask, and you won't think to ask unless you know these fees exist.
Mistake #7: Taking Out a HELOC Right Before Selling
If you're planning to sell your home within the next year or two, a HELOC probably isn't the right move. The line must be paid off when you sell, and you'll have paid fees and interest for a very short-term benefit.
There are also early closure fees with some lenders that can eat into any savings you might have gained.
Final Thoughts
A HELOC is a powerful financial tool when used intentionally. The homeowners who benefit most are those who shop aggressively for the best terms, borrow only what they need, have a clear purpose for the funds, and budget for rate variability.
The ones who get hurt are those who treat it like free money. It's not. It's debt secured by your home, and it deserves to be treated with appropriate seriousness.
