HELOC’s – The Pro’s and Con’s

Advantages of a Home Equity Line of Credit
1. You pay interest which is compounded only on the amount you borrow, not the total equity available in your credit line.
2. Interest paid is usually tax deductible if used for an investment.
3. They’re relatively easy to open if you have a lot of equity in your home.
4. You can borrow up to 80 percent of the home’s equity.
5. You can use it whenever you like.
6. The interest rate also may be lower than the rate on a second mortgage.
7. The closing costs may be more affordable as well.
Disadvantages of a Home Equity Line of Credit
1. A HELOC is a loan and must be paid back—with interest compounded like a credit card.
2. HELOCs typically have a life of 10 years, after which it becomes a regular home equity loan with amortized payments unless you renew it. Renewing means you must qualify all over again, which isn’t as easy to do once you’re retired and don’t have a regular paycheque.
3. Without discipline, you might overspend, tapping out the equity in your home and leaving yourself faced with a large principal and interest payments during the repayment period.
4. Terms and characteristics of home equity loans and lines of credit vary from one lender to another. Be sure you understand the repayment terms of your loan before you commit to a lender, and don’t be afraid to shop around before you sign on the dotted line.
5. The bottom line: Using the equity in your home before selling can be a powerful financial benefit. But remember, you are using your home as collateral. One risk to avoid, whether you choose a home equity line of credit or a loan: Resist funding short-term needs with what may eventually amount to a long-term loan.

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