HELOCs are extremely popular among homeowners who plan to undertake home renovation projects or need access to very large amounts of money, in general. They are useful for large recurrent expenses, or developing projects on which it would be difficult to put a price tag. Regardless of the reason behind their decision, a lot of individuals are currently applying for HELOCs. However, as useful as these financial products might be, they are also extremely dangerous, especially during times of economic instability. The Covid-19 pandemic has reduced the incomes of many families throughout the country, some of which are currently trying to repay their HELOCs. In some situations, repaying the money on time may become impossible, which puts many individuals at risk of losing their homes. This having been said, being unable to repay a home equity line of credit does not necessarily mean that the lender will take possession of your home. There are ways to avoid this unfortunate outcome. Here is what you need to know:

The Lenders Want Money, Not Homes

One of the most common mistakes in these situations is that some people give up right from the beginning, thinking that the bank is looking forward to taking possession of their home. In reality, lenders are aware that in some situations, borrowers may not be able to repay the money on time. As a result, most will agree to work with the borrowers to find a solution. Generally speaking, lenders would rather get their money back than take possession of the borrower’s property. The first thing that an individual should go if he finds that he can no longer repay his HELOC is to go to the bank and explain the situation. Chances are that, if there is an ongoing national or international crisis, the bank will already have had developed repayment alternatives.

In most cases, lenders try to work with the borrowers and help them repay the money more easily. This can be done by refinancing the loan or through other deals.

Save Money Wherever Possible

If your income has been reduced for whatever reason, consider reducing other expenses to save as much money as possible. This can include a wide variety of creature comforts from things like Netflix subscriptions, getting food from the farmer’s market instead of the supermarket (the difference in price may not be much, but every bit helps), etc. Keep in mind that the purpose here is not to cut your monthly expenses enough to manage to repay the HELOC, however, when the bank offers another deal designed to help you repay it, you will have to have enough money to take. Most lenders refinance loans to give borrowers more time to repay them, but they do not allow individuals to postpone payments.

Consider Getting a Debt Consolidation Loan

One of the most often-used ways to get an expensive loan under control is through debt consolidation. These loans use the borrower’s home as collateral, they have long repayment terms (up to 10 years), and relatively low-interest rates. The best part about them is that they can be used to repay virtually any type of debt, including lines of credit. Consider applying for a debt consolidation loan, especially if you have other forms of outstanding debt. In some cases, repaying these in full may allow individuals to redirect some of their monthly income towards repaying the HELOC. If you have debt on your credit cards, a personal loan, a payday loan that needs to be paid, or anything in-between, make sure that you repay these first. This may reduce your monthly expenses enough so that if you also budget your income, you will be able to repay the home equity line of credit.

The Covid-19 pandemic has swept the globe, reducing the income of many individuals and even leaving some without jobs. This is a serious issue by itself, however, if we are to also factor in the fact that unexpected expenses tend to appear relatively frequently, it is safe to say that some individuals may simply not earn enough to get through the current economic and health crisis. This issue has pushed many to get loans from banks, only to discover that they have a difficult time repaying the money.

However, this is usually the case when the borrowers act hastily and do not consider all the lending options that they have at their disposal. This having been said, we will look at what are the best loans to apply for during the Covid-19 pandemic.

Unsecured Personal Loans

Personal loans have always been the people’s choice when it comes to borrowing money from banks, and they are still extremely useful during the Covid-19 pandemic. They have low-interest rates, relatively high values and getting one does not require individuals to have perfect credit ratings. Furthermore, the application and evaluation process usually takes under 5 days, making them great for those who have urgent expenses that they need to cover. It is also worth mentioning that there are no restrictions on what borrowers can do with the money. This means that personal loans can be used to pay for medical treatments and procedures, home repair projects, household appliances, electronic equipment such as laptops and smartphones, and others.

Generally speaking, personal loans are the best go-to solution when an individual needs to pay for an expensive product or service. However, it is important to make sure that the loan is unsecured. This does slightly increase the interest rate of the debt but reduces the risk on part of the borrower.

Home Equity Lines of Credit

Many individuals look at HELOCs and think that getting a line of credit that is secured against the borrower’s home is not a good idea during a pandemic. However, this is exactly the reason why these loans are perfect for times of financial instability. Traditionally, HELOCs have very low-interest rates, making them one of the most affordable ways to borrow money. Furthermore, while borrowers gain access to the full amount that they borrow, they only pay interest for what they withdraw from the line of credit. In other words, if an individual gets a £100,000 home equity line of credit and the only withdraws £500, he will only pay interest for those £500. Furthermore, it is not necessary to repay the money by the end of the month.

HELOCs are designed to be used for several years, leaving borrowers to repay the money, at their leisure. The only condition is that the money needs to be repaid in full by the end of the agreement. In many ways, home equity lines of credit can be used as credit cards, but they have much lower interest rates. Furthermore, using them on a monthly, weekly, or daily basis will not affect the borrower’s credit rating.

Keep in mind that as useful as HELOCs may be, they can still cause individuals to lose possession of their home in favour of the bank. If you apply for a HELOC, only use it when it is necessary and try to always repay the money by the end of the month or the month after. If an individual withdraws only £500 during the first month, the interest rate will not be much, but it will be recurrent. However, continuing to withdraw money monthly without repaying it can lead to having to pay very high-interest rates.