Secured Line of Credit

Secured lines of credit are a form of a mortgage commonly known as a Home Equity Line of Credit (HELOC).  Lenders with secured lines of credit take less risk than loaning funds on an unsecured basis.  In many cases, secured lines of credit provide borrowers with greater amounts of funds available than they would have been able to borrow if the line of credit or loan was unsecured.  As a result of lenders taking less risk on this type of loan, lower interest rates and more favourable terms are offered to borrowers. 

Many individuals and business owners consider establishing lines of credit to fund large purchases and cover potential emergencies. 

Canadians are enamoured with home equity lines of credit, but many are using them as a quick, easy way to borrow without really understanding how they work.  This can cause a number of serious issues in the future when borrowers may need additional credit or when individuals sell or refinance their homes.

A HELOC may present serious problems for individuals who do not budget properly and spend more than they would normally, thus resulting in an increased amount of debt.  Although most people use a HELOC for legitimate reasons, some individuals use the funds for inappropriate things like subsidizing trips or buying recreational vehicles. 

It is recommended that borrowers review all line of credit documents and fully understand the terms and conditions.  Additionally, having a lawyer review secured line of credit documents is generally recommended.

Key Points to Consider

  • A HELOC will put a mortgage on the borrower’s home
  • A home equity line of credit will affect your credit rating
  • Lines of credit, regardless of whether used or unused will affect future loans with all financial institutions;  they involve an individual’s credit rating

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April 27, 2017

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