Can you increase your HELOC limit? 2 ways to do it
In recent years, a surge in home values has provided many homeowners with a significant boost in their home equity levels. And, thanks to that widening gap between property values and outstanding mortgage balances, the average homeowner currently has nearly $300,000 worth of home equity that can be leveraged for financing home renovations, consolidating high-interest debt, funding education expenses, covering unexpected emergencies or any other number of uses.
And, there are several options available for accessing this equity, including home equity loans, which provide a lump sum of cash to borrowers, and home equity lines of credit (HELOCs), which offer a revolving line of credit to draw from. But HELOCs, in particular, have become a popular choice for many due to the flexibility and convenience they offer, as these borrowing products allow homeowners to draw funds as needed, up to a predetermined limit. This makes HELOCs an attractive option for those who need access to funds over an extended period or those who need to borrow for multiple projects or expenses.
However, there may be instances when the initial HELOC limit falls short of a homeowner's needs. Perhaps an unexpected opportunity arises, such as a profitable investment or a major home renovation project that exceeds the initial budget. In such cases, homeowners may wonder: Can you increase your HELOC limit? Below, we'll break down two ways to do so.
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Can you increase your HELOC limit? 2 ways to do it
In many cases, it is possible to increase the limit on your HELOC. After all, lenders understand that circumstances can change, and they may be willing to reevaluate your situation and adjust your credit line accordingly. So, if you want to increase your HELOC limit, there are a couple of ways you can approach it:
Refinance your HELOC
One way to increase your HELOC limit is to refinance your existing line of credit with a different lender. By shopping around and comparing offers from multiple lenders, you may be able to secure a more favorable deal — one with a higher credit limit, and in some cases, better terms.
When refinancing your HELOC, lenders will re-evaluate your financial situation, including your credit score, income and overall debt levels. If your circumstances have improved since you initially obtained your HELOC, or if you have a much higher amount of equity in your home than you did when you initially borrowed, you may be in a stronger position to negotiate a higher limit.
However, it's important to note that refinancing may come with additional fees and costs, such as closing costs, appraisal fees and potential prepayment penalties from your current lender. Carefully weigh these expenses against the potential benefits of a higher credit limit to determine if HELOC refinancing is the right choice for you.
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Take out a new HELOC
If refinancing your existing HELOC is not an attractive option, you may want to consider taking out a new HELOC with a different lender instead. This approach essentially starts you with a fresh line of credit, potentially with a higher limit based on your current financial situation.
As with refinancing, when you're applying for a new HELOC, the lenders you work with will thoroughly evaluate your creditworthiness, income, debt levels and the current value of your home. If you have maintained a strong credit profile, increased your income or seen significant appreciation in your home's value since taking out your previous HELOC, you may, in turn, be eligible for a higher credit limit.
Keep in mind that taking out a new HELOC may also involve paying for additional fees and costs, such as application fees, appraisal fees and closing costs — so you'll want to compare those costs against the potential cost of refinancing your current HELOC to determine which one makes more sense. And, you may need to provide extensive documentation to support your application, including proof of income, tax returns and other financial records, so keep that in mind as well.
What to consider before increasing your HELOC limit
Increasing your HELOC limit can provide several advantages, such as access to additional funds for home improvements, debt consolidation or other financial needs. That can be a big benefit for borrowers who need access to more money than expected initially. Increasing your HELOC limit can also offer greater flexibility and convenience compared to borrowing with a lump-sum home equity loan, as a HELOC allows you to borrow as needed up to your new limit.
However, there are also potential drawbacks to consider. A higher HELOC limit may tempt you to overextend yourself financially, potentially putting your home at risk of foreclosure if you struggle to make payments. And, the process of increasing your limit, whether through refinancing or taking out a new HELOC, may involve fees and costs that could offset some of the benefits.
In turn, it's crucial to carefully evaluate your financial situation, future plans and ability to responsibly manage a higher credit limit before pursuing an increase in your HELOC. While access to additional funds can be beneficial, it's important to strike a balance between meeting your financial needs and avoiding unnecessary risks or burdens.
The bottom line
It's important to note that while increasing your HELOC limit is possible, lenders may also impose new terms and conditions on the higher limit. So, be sure to do all of your homework beforehand and fully understand the terms and requirements in order to make an educated decision for your finances. You should also carefully consider your reasons for increasing your HELOC limit and ensure that you have a solid plan for responsibly managing the additional credit. While home equity can provide a valuable source of funds, it's best to approach it with caution and avoid overextending yourself financially.
