Move Up Buyers

Advantages & Disadvantages of a HELOC?

A home equity line of credit (HELOC) is a secured form of credit where the lender uses your home as a guarantee that you'll pay back the money you borrow.

Let's talk about the Advantages first:
  • 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, and,
  • you can consolidate your debts, often at a lower interest rate

There are just a couple of disadvantages to be aware of:
  • 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
  • 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