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Pros and Cons of Getting a HELOC


Everyone knows the obvious benefits of owning a home – you have a roof over your head that you can proudly call ‘your own’, you secure your future and retirement through a profitable real estate investment and you save yourself from the worries and anxiety of living on rent.

However, there is another key advantage of home ownership that most people do not know about – the HELOC loan. HELOC (Home Equity Line Of Credit) is actually a loan that you can draw on the basis of the equity you have in your home. So even if you are paying for your Canada mortgage, you can get an additional loan through your home equity and use it for any renovations, major repairs or any personal immediate needs.

Sounds great, isn’t it? However, before you think about cashing into your HELOC and decide to withdraw it to pay off any other debt you owe, make sure you go through the following points in detail. Learn about both the pros and cons of withdrawing a HELOC and find out if it has any effect on your Canada mortgage. Have a look:

The Pros

- The HELOC is a secured loan so you can be guaranteed of better interest rates as compared to other alternatives.

- The more Canada mortgage payments you make, the more your equity increases. And as your equity builds, you can apply for a higher amount of HELOC loan.

-  You are not restricted to use the HELOC loan for any specific purposes – you can either use it to get some repair work done in your house or even go on that holiday you have been dying to go to! It’s your call!

- The payment plan for this loan can be decided upon your terms! Unlike a Canada mortgage loan where you may be penalized if you make bulk payment san pay for the mortgage faster (depending upon the type of mortgage you have), you can pay off the HELOC installments whenever you have the extra cash. You can also ask your lender for a monthly or bi-monthly installment plan.

-  Even if you do not pay the interest amount every month, it will be withdrawn by your lender automatically every month.

The Cons

It is important to realize that nothing good in this world comes cheap. An HELOC loan too comes with strings attached, and ignoring these factors can result in some serious consequences down the road.

-  Too much debt is never a good idea. HELOC provides an easier access to money, which can fuel up your overspending habits and make you drown in the burden of debt for a long time.

-  The HELOC is tied to your home, so if you are not able to pay back the loan amount, you risk losing your home.

-  The interest rates for an HELOC are lower than other LOCs but the amount will be still higher than your conventional mortgage rate. Therefore, if you look at the bigger picture, you end up paying more than you spend.

An HELOC is a good idea if you keep a check on your spending habits and have sufficient savings intact. However, too much of a good thing may backfire on you so make sure you plan and think in detail before making a decision!

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