Is a Home Equity Line of Credit right for you?

To use your HELOC wisely, you need to stick to a plan to pay it off fully, and avoid continually borrowing against your home equity.
Learn more at canada.ca/money


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If you're like millions of other Canadians, you're busy paying down your mortgage.
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It will take 25 years or so... but it can be a great way to accumulate personal wealth especially if house prices rise.
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But mortgages have changed. And it's important to understand just how if you want to fully benefit from your home's potential to build your personal wealth.
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The first thing to understand, is something called "equity".
(Animated hand draws house outline. Words “250k Mortgage appear on screen”)
That's the difference between what you owe on the house and the value of the house.
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Your equity can increase in two ways. As you pay off your mortgage,
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and if the value of your house rises.
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Today, to finance your house
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most banks will offer you a readvanceable mortgage if you have a down payment, or equity of 20% or more
(Animated hand draws house outline with gold coins on roof. Words “equity”, “Readvanceable mortgage,” and “You own” appear on screen)
It combines a traditional mortgage with a home equity line of credit. There's a big difference between these two forms of debt.
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Your mortgage debt only goes one way... down, down, down because you must make regular payments against both the interest and the principal borrowed. You pay down the mortgage principal on the one hand, your equity grows.
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But, you can borrow against that equity with the other hand... using the home equity line of credit, or HELOC. that is part of your readvanceable mortgage.
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Unlike your mortgage,
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you only have to make regular payments against the interest owing on your HELOC.
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Without paying down the principal, until you sell your home.
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This short-term credit advantage can mean a long-term debt problem.
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For some folks,
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a HELOC can be a good way to pay off other, higher-interest debt or home renovations.
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But ask yourself,
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Would a HELOC tempt you to use your home like an ATM?
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Mounting HELOC debt could put you at risk if you lose your job, get sick or injured, interest rates go up, or, if your home decreases in value.
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If you continually borrow against your home's equity, you might end up owing more than your home is worth, lose your home, or have to sell it to pay down your debt.
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To use your HELOC wisely,
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you'll need to stick to a plan to pay it off fully, and avoid continually borrowing against your home equity.
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Don't use your house as an ATM.
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Take charge of your finances.
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Learn more at canada.ca/money
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