HOME EQUITY LINE OF CREDIT (HELOC)

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What is a Home Equity Line Of Credit

A Home Equity Line of Credit (often referred to as a HELOC) is a revolving line of credit secured by your home. This option is very popular in Canada and can be used for any purpose and is often available to the homeowner until the home is sold.

A home equity loan is a financial product that allows homeowners to borrow money using their home’s equity as collateral. Equity refers to the difference between the home’s current market value and the outstanding mortgage balance. With a home equity loan, borrowers can access a lump sum of money, typically at a fixed interest rate and with a predetermined repayment schedule.

The loan amount is determined based on the appraised value of the property, conducted by an appraiser from the lending institution. Homeowners can use the funds from a home equity loan for various purposes, such as home renovations, debt consolidation, education expenses, or major purchases.

Unlike a home equity line of credit (HELOC), which provides a revolving line of credit, a home equity loan offers a one-time payout. The borrower receives the entire loan amount upfront and repays it over time, usually through monthly installments.

It’s important to note that a home equity loan puts the homeowner’s property at risk. If the borrower fails to repay the loan as agreed, the lender has the right to foreclose on the property. Therefore, it’s crucial to consider one’s financial situation and repayment capability before obtaining a home equity loan.

Additionally, it’s recommended to compare loan offers from different lenders, considering factors such as interest rates, fees, repayment terms, and eligibility requirements. Consulting with a financial advisor or mortgage professional can help determine if a home equity loan is the right choice for an individual’s specific circumstances.

Home Equity Line Of Credit FAQs

How much of a credit limit is available on a Home Equity Line of Credit?

Generally, you can access 65% – 80% of the value of your home. It is important to remember that lenders will consider your credit score and any mortgages you currently have, when approving your Home Equity Line of Credit application. For Example; If your home is valued at $400,000 and your existing mortgage balance is $200,000, the maximum Home Equity Line of Credit limit will be set at $120,000 ($400,000 x 80% = $320,000 less your mortgage balance of $200,000).

<br /> How do I access my funds through a Home Equity Line of Credit?

Normally you will access monies either by obtaining cash or transferring to your bank account. Some lenders will provide you with cheques to obtain Home Equity Line of Credit funds. Remember you only will pay interest on the amount borrowed.

What payment options are available with a Home Equity Line of Credit?

Your minimum payment due monthly will be the interest cost on the amount borrowed. You are free to pay as much as you wish over this amount.

What is the interest rate and term for this option?

The interest rate is generally set at the Bank Prime rate plus a percentage depending on the client and lender, and is adjusted on a monthly basis, if applicable. (For Example, Prime plus 0.50%) Some lenders will offer a “locked-In” option, allowing you to have a fixed rate that will not change for your selected term which is generally 1 – 5 years. For example, if you have a limit on your Home Equity Line of Credit of $100,000, you could choose to have $50,000 locked-in at the current 5-year rate (principle and interest payment) and $50,000 at the bank prime rate (floating interest only payment)

If my mortgage is Renewing, am I able to obtain a Home Equity Line of Credit?

Yes, when your mortgage is renewing this is a good time to consider this option as you will not be charged a prepayment penalty from your existing lender to break your existing term. Remember, this is also an option if you currently have an existing mortgage and wish to access equity from your home, as the Home Equity Line of Credit can be registered as a second charge on the title of the property.

Am I able to finance a new home purchase with a Home Equity Line of Credit?

Yes, if you have a larger down payment, this is a great option for many home buyers to consider. Some lenders will allow a 20% down payment amount for a new home purchase.

Renew your mortgage now.