A homeowner’s line of credit often has a lower interest rate than a loan. It’s certainly more flexible.
Once you’re approved for a certain credit limit, you can take out as much as you want and pay back only a required minimum amount each month. But remember you’re making interest-only payments, so you can pay the monthly minimum and never make any progress on trimming your debt.
Remember, too, that a line of credit has a floating rate that can go up. If you prefer fixed rates, stick to a conventional loan, advises moneyville.ca. A line of credit backed by your assets, such as a principal residence, usually has a lower rate than an unsecured line of credit. Both are based on the bank’s prime rate, such as prime plus 1 per cent or prime plus 3 per cent. You can save money if you get a line of credit secured by your house at the same time you apply for a mortgage or refinance an existing mortgage.
Always try to pay more than the minimum amount so that you’re not spinning on a treadmill of debt.