Many homeowners try to take advantage of the equity in their home to obtain a home equity line of credit. There are some disadvantages as it relates to a HELOC loan. Let’s take a look at some of these pros that you should be aware of.
The Collateral Risk
Because you will be using your home as the collateral for acquiring the home equity line of credit, it is considered a secured loan and you are taking a risk of losing your home, if you fall short and the loan defaults. You run the risk of foreclosure, if you are unable to keep up with the monthly payments.
Variable Rate of Interest
If you were to opt for a home equity loan, you would receive a lump sum and the interest rate would be fixed. However, with the HELOC, you will have to be content with variable rate of interest, which means that it will fluctuate and so your monthly loan premiums will also be different; depending on the interest rate set by the Federal Reserve on a periodic basis.