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, can be used for any purpose, and is usually available to the homeowner until the home is sold.
A Home Equity Line of Credit is a great choice to consider. Contact John Antle Mortgages to find out more.
Because both a home equity loan and a HELOC use your home as collateral, you end up being able to enjoy much better interest rates than you would if you used personal loans, credit cards from a financial institution, or other forms of debt. Both home equity lines of credit and home equity loans have their own advantages, and your John Antle Mortgage Specialist will help you decide which option is best for your particular situation.
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 most 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 from most financial institutions will be set at $120,000 ($400,000 x 80% = $320,000 less your mortgage balance of $200,000).
How do I access my funds through a Home Equity Line of Credit?
Normally access to your HELOC funds is provided in cash or through a bank transfer into your account. Some lenders may provide cheques. Remember, you only will pay interest on the amount borrowed, not monthly payments on the entire lump sum like you would with a home equity loan with either a fixed interest rate or variable interest rate.
What payment options are available with a Home Equity Line of Credit?
HELOCS offer interest only payments, meaning that your minimum payment due monthly will be the interest cost on the amount borrowed. You are free to pay as much as you wish in addition to 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 (e.g. the prime rate plus 0.50%), depending on the client and lender. The amount may be adjusted on a monthly basis, if applicable. Some lenders or credit unions will offer a “locked-In” option, allowing you to have a fixed rate that will not change for your selected term, which is generally between one and five 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 monthly interest payments) 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 traditional mortgage is renewed this is a good time to consider a HELOC option, as you will not be charged a prepayment penalty on your mortgage payments 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.
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