Personal Finance

Home equity Line of Credit - in a low interest rate environnement

  • Last Updated:
  • Feb 4th, 2021 6:25 pm
[OP]
Newbie
Jun 25, 2019
98 posts
102 upvotes
Montreal

Home equity Line of Credit - in a low interest rate environnement

Hi all,

I used to be a financial advisor and in my experience very few financial advisors will give you advice on home owners lines of credit. Which is sad since IMO its quite an interesting product.

Inconveniences:
  • The main limitation is the required 20% down.
The advantages:
  • Flexible reimbursement (aka, in a low rate environment you can reimburse only the interest portion)
  • Take what you need when you need it (if for whatever reason a better opportunity presents itself for investment you can just allocate your capital accordingly without needing to sell your property or needing to refinance.)
  • Take a break on your own terms (Literally if you have enough equity and you want to take a year off, well you take a year off from paying your mortgage) .
  • If the rates trend start to go up you can always switch part or all of your margin into a fixed mortgage.

Due diligence
Please keep in mind that the current low rate environment makes this situation more appealing. It does not mean it will always be this way. If you decide to do this, monitor the market closely.
Debt is debt and will need to be repaid eventually but it does not mean you have to pay it right now if there is a better use for your money.
Do not use lines of credits for discretionary spending. If anything this is just a tool to better allocate your capital not to spend up to the last cent.


HELI Rates:
Variable portion : 2.00
Fixed portion : 2.25 (Rate was renewed before 2020)
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