(NC) With the warm weather finally here, maybe you’re considering installing a pool or doing those home renovations you’ve been dreaming about. Perhaps you want to get away and an RV or a cottage are at the top of your wish list.

A home equity line of credit (HELOC) is a quick and easy way to pay for such big expenses. But the long-term risks of HELOCs can outweigh their up-front benefits if you don’t manage the loan well.

How do HELOCs work?
HELOCs are secured by your home as a guarantee that you’ll pay back the money you borrow. With a HELOC you can borrow money, pay it back and borrow it again up to a maximum credit limit. They use a variable interest rate, which means your payment amounts will change as the lender’s prime interest rate goes up or down.

Advantages of HELOCs:

• They offer easy access to credit.
• They have lower interest rates than other types of credit, especially unsecured loans and credit cards.
• You can pay back the money you borrow at any time without a penalty.
• You can borrow as much as you want, up to your available credit limit.

Disadvantages of HELOCs:

• It takes discipline to pay off a HELOC because you’re usually only required to pay the monthly interest charges.
• Large amounts of available credit can make it easier to over-spend and carry debt for a long time.
• You will have to pay off your entire HELOC if you sell your home or want to switch your mortgage to another lender.
• The amount you owe on your HELOC reduces the equity in your home.
• Your bank could take possession of your home if you miss payments.

Before you take out a HELOC, make sure you consider the risks and have a repayment plan. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They must also tell you if they assess that a product or service isn’t appropriate for you. Don’t hesitate to ask questions and make sure you understand the product offered to you.

Find more information at canada.ca/money.