The risks and potential drawbacks of a mortgage line of credit
- Clement Chung
- Apr 1, 2023
- 2 min read
A mortgage line of credit, also known as a home equity line of credit (HELOC), is a type of loan that allows you to borrow against the equity in your home.
While a mortgage line of credit can be a useful tool for homeowners, there are some potential risks and drawbacks to consider before deciding if it’s right for you.
You could lose your home – One of the main risks of a mortgage line of credit is that you could lose your home if you’re unable to make your monthly payments. If you default on your loan, the lender has the right to foreclose on your home and take possession of it. This could result in you losing the equity you’ve built up in your home and being forced to move out.
You could end up owing more than your home is worth – Another potential drawback of a mortgage line of credit is that you could end up owing more than your home is worth if you borrow more than the value of your home. For example, if you take out a mortgage line of credit for $100,000 and your home is only worth $80,000, you could end up owing $20,000 more than your home is worth. This could make it difficult to sell your home or refinance your mortgage.
You may have limited investment options – Unlike other types of retirement savings accounts, such as individual retirement accounts (RSP's) and TFSAs, mortgage lines of credit typically have limited investment options. This means that you may not be able to take advantage of potentially higher-yielding investments, which could impact the growth of your savings.
Overall, a mortgage line of credit can be a useful tool for homeowners, but it’s important to carefully consider the risks and potential drawbacks before deciding if it’s right for you.
Be sure to carefully review the terms of the loan and weigh the potential risks and benefits before making a decision.
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