Home equity lines of credit (HELOCs) have become a popular type of loan across Canada. HELOCs can be an excellent way to borrow money because the loan itself is fairly inexpensive compared to other types of credit, and they are quite easy to qualify for if you have equity in your home. Home equity lines of credit can be put to all kinds of uses from making renovations to your home, starting a business or for paying off higher interest debt.
It is however important to understand that there are both pros and cons to this type of loan, and before you apply for one you should know what they are.
1. How does a home equity line of credit work?
A home equity line of credit allows you to borrow against a portion of the equity in your home. Once you have borrowed the money you can pay it off in full at any time but at minimum there are monthly payments that your need to make.
2. Benefits of a home equity line of credit
One of the biggest appeals of home equity lines of credit is that they are quite easy to get because the only real criteria is that you have equity in your home. Besides that, the interest rates are generally quite good. They work like a regular line of credit in which you get a maximum amount that you can borrow. As long as you are making your regular payments, the amount agreed upon will be there for you to borrow against.
3. Disadvantages of a home equity line of credit
Once you are approved for a home equity line of credit, it is important that you are disciplined and have self-control. Having access to a large amount of money can make it easy to build up a lot of debt. It is a good idea therefore to only use your home equity line of credit for short-term needs and then to pay it off as quickly as possible.
You also need to be aware that a lender can change the terms of this type of loan without notice. They may for example change the interest rate or the amount of money that you can borrow.
4. Is a home equity line of credit right for you?
As long as you have equity in your home and you understand both the pros and cons of this type of loan, a home equity loan can be a smart choice to help you get access to the cash you need. To learn more about home equity loans contact Akal Mortgages at 4160 621-1300.
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