What to know before borrowing against your home equity

Before winter gets here, you may be thinking of doing some home repairs. And to pay for them, you may consider using a home equity line of credit, often called a HELOC. HELOCs have advantages but can also lead to negative outcomes.

How do they work? You borrow money secured against your home equity. That means the lender uses your home as a guarantee that you’ll pay back the money you borrow. Typically, interest rates on loans secured against home equity can be much lower than other types of loans, which means they can be a good option to consolidate other debts. You also only pay interest on the amount you borrow, and you can pay back the money you borrow at any time.

On the other hand, having a home equity line of credit requires discipline to pay it off because you’re usually only required to pay the monthly interest. Large amounts of available credit can make it easier to spend more and carry debt for a long time. HELOCs often have variable interest rates and when rates increase, so do your monthly interest payments.

A home equity line of credit may or may not be useful to you. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They must also tell you if they assess that a product or service isn’t appropriate for you. Take the time to describe your financial situation to ensure you get the right product. Don’t hesitate to ask questions and make sure you understand the product you want.

Learn more at canada.ca/money

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