Did you know? The differences between Credit cards, Line of Credit, Mortgages and a HELOC.

Posted On Dec 02, 2024

Money can be borrowed through various channels, some having more manageable interest and payment terms as compared to the others.
To make an informed choice, be sure to find out what type of lending meets your borrowing needs:
1)Do you need a revolving credit access for small daily expenses;
2)Are you wanting to borrow to meet mid size expenses like vacation and renovation;
3)Lastly, if you are in the market for for a big ticket purchase like a home.

A)Credit cards-require a minimum monthly payment, annual interest can be around 20% or higher, offer cash backs and reward points. Some may have deals on insurance and warranties, however these perks may come at an annual fee on the credit card.

B)Line of Credit -like a credit card requires a minimum monthly payment, annual interest can be around 5-10% depending on the prime rate, interest is only charged to the amount you use/borrow at any given time. Many see it as a wiser and more manageable option.

C)Mortgages-Line of credits or personal loans by design can not meet the big ticket price requirements. Mortgages are borrowing products made usually for a 25 years or longer amortisation period with 5 year terms being the most common. At the end of the 5 year borrower and lender can renegotiate and renew their terms of contract.

D)Home equity line of credit (HELOC)-is like a mortgage add-on and is secured against the owners equity in their home. Borrowing amounts are generally less than a mortgage. Similar to a mortgage it could involve prepayment penalties, if the principal loan amount is tried to be paid out earlier.

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Source: https://www.msn.com/en-ca/money/topstories/credit-cards-vs-lines-of-credit-how-different-ways-to-borrow-money-in-canada-compare/ar-AA1v47DK