Borrowing against your home can be a smart, lower-cost way to get money for something important. It can also put the most valuable thing you own at risk. Before you sign, it’s worth looking squarely at what can go wrong, and how to protect yourself.
The main risks
Your home is the security
If you can’t make the payments, the lender can eventually take legal steps to recover the loan from the property. In Alberta that process runs through the courts and takes time, but the costs add up and the outcome can be losing the home or much of your equity.
Costs can be higher than they look
Fees taken from the loan, higher rates and renewal costs can add up. Compare offers on total cost. See rates and fees.
Values can fall
If home prices drop, your remaining equity shrinks. That can make it harder to refinance, renew on good terms or sell without a loss. See how Alberta home prices affect your equity.
Turning short-term debt into long-term debt
Rolling a credit card balance into a mortgage lowers the rate but can stretch repayment over many more years, so you pay interest for longer.
Renewal isn’t guaranteed
At the end of the term, the lender may change the terms or decline to renew. If your situation hasn’t improved, options may be limited.
Borrowing again
Freed-up credit cards and lines of credit can fill up again, leaving you with the new mortgage and new debt.
How to protect yourself
- Borrow for a clear purpose, and only what you need. See how much equity you need.
- Keep a cushion of equity rather than borrowing to the limit.
- Make sure the payment is comfortable, not just possible.
- Have a plan for the end of the term. See moving back to a bank.
- Use your own lawyer and read every clause.
- Build an emergency fund, so one surprise doesn’t put you behind.
When not to borrow
If the money would cover ongoing spending that your income can’t, borrowing against your home delays the problem and raises the stakes. Talking to a broker, and possibly a non-profit credit counsellor, first is wiser.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.