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- Low interest rates – much lower than credit cards.
- Flexible payments – you can repay what you owe at any time without penalty.
- Very high credit limit – you can borrow up top 65% of your property value.
- Because payments are so flexible, borrowers have a tendency to borrow more than they need and take longer to repay the money.
- The variable interest rates that are typically associated with a HELOC, can move up or down depending on how the economy fares, and the discretion of the lender. This can have a great impact on your debt repayment. If for example, if the rate increases from 4% to 5%, you would have to pay a whopping 25% more in interest payments.
- Financial institutions can ask you to pay down your HELOC at any time, or lower your credit limit, at their discretion.
- Real estate prices can go down and you could end up with the value of your home being less than your mortgage and your HELOC combined.
- You could also lose your job or suffer a reduction in your monthly income, leaving you not enough cash flow to even pay the interest portion of your HELOC.
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