What Are the Disadvantages of a Home Equity Line of Credit?
A home equity loan with a fixed rate of interest is better suited for debt consolidation than a one which has a variable interest rate. Several large lenders do not provide the fixed rate loan anymore because a HELOC has grown more dominant in the market.
While a home equity line of credit does offer many advantages to borrowers, it does have its own set of disadvantages. As with any other financial product, there are many downsides to a home equity line of credit, and a notable one is that the rate of interest is variable, meaning monthly payable amounts can be lower or higher when compared with the rate at the start. The rate of interest varies, and it is determined by many criteria, including the Federal Reserve’s decisions, and investor demand for both Treasury bonds and Treasury notes.
It is better suited either to a home improvable project where the costs will only be incurred in phases or suited for college tuition’s payments which get paid gradually over time. There are other downsides to a HELOC, but most of the time, these depend on the kind of use you intend to put the money towards.