The Home Equity Loan/Line of Credit Savior or Curse?

Q.  I am thinking of mortgaging the equity in my home to pay debt.  Is this a wise choice or just robbing Peter to pay Paul?

It has been suggested that if you use your home equity to pay debt, then you are likely living beyond your means and spending far more than what you are taking in.

Home equity loans allow you to borrow against the value of your home. These loans appeal to borrowers who find that they can borrow relatively large amounts of money, and sometimes they are easier to qualify for than other types of loans because they are secured by your house.  But the effect is that you are trading an unsecured debt and making it secured, against your home.

A home equity loan is a type of second mortgage. Your “first” mortgage is the one you used to purchase your home, but you can add other loans to borrow against the property if you have built up enough equity.  But make no mistake that a home equity loan is a mortgage and that if you do not pay your mortgage, you run the risk of losing your home.

If you file a consumer proposal or a bankruptcy, you may be able to retain your assets and your equity while at the same time compromising your debts.


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