October 1, 2019
Advantages of home equity lines of credit include:
- easy access to available credit
- often lower interest rates than other types of credit (especially unsecured loans and credit cards)
- you only pay interest on the amount you borrow
- you can pay back the money you borrow at any time without a prepayment penalty
- you can borrow as much as you want up to your available credit limit
- it’s flexible and can be set up to fit your borrowing needs
- you can consolidate your debts, often at a lower interest rate
Disadvantages of home equity lines of credit include:
- it requires discipline to pay it off because you’re usually only required to pay monthly interest
- large amounts of available credit can make it easier to spend higher amounts and carry debt for a long time
- to switch your mortgage to another lender you may have to pay off your full home equity line of credit and any credit products you have with it
- your lender can take possession of your home if you miss payments even after working with your lender on a repayment plan
These are some disadvantages of a home equity line of credit that are common to other loans:
- variable interest rates can change which could increase your monthly interest payments (your lender will provide advance notice of any change)
- your lender can reduce your credit limit at any time (your lender will provide advance notice of any change)
- your lender has the right to demand that you pay the full amount at any time
- your credit score will decrease if you don’t make the minimum payments as required by your lender
Source: Canada.ca
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