Jim Laszlo, RRC®
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Advantages and disadvantages of a home equity line of credit

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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