Managing your HELOC

[Shane C Tack]

I have a HELOC on my personal residence that I'm currently in the process of remodeling. I have good equity in the house so I pulled out a HELOC to help with the remodel expenses. Over the last year the interest rate has gone from 5% up to 10%. I feel like everyone always talks about using HELOCs to buy more house or remodel, but no one ever talks about managing the high costs of borrowing the money. I don't want to just be paying interest everyone month and not be making a dent in the principal. I have some cash saved up but would rather keep that as an emergency fund. Would be great to hear how people actually manage their lines of credit. Thanks!

[Steve Vaughan]

Quote from @Shane C Tack:

I have a HELOC on my personal residence that I'm currently in the process of remodeling. I pulled out a HELOC to help with the remodel expenses. Over the last year the interest rate has gone from 5% up to 10%. Would be great to hear how people actually manage their lines of credit. Thanks!

We locked our rate when we took out our heloc in 2021. Ours is a 1st on a free and clear home. 

For ratios- floating rate at the time was 3.75%,  3yr lock 4.3%, 5yr lock 4.75%. 

It's tempting to take the floating rate, but if you know you will be financing a long-term project or asset, the longer lock makes sense in a rising rate environment.  The rate certainty is worth the small premium. 

I'd be paying this down aggressively and use the heloc as my emergency fund vs my long-term leverage fund.  10% is crazy.