Adding a Home Equity Line of Credit (HELOC) to your Property
A HELOC is a lending solution that turns your equity into opportunity. A HELOC is a line of credit secured by your home that gives you a revolving credit line. A HELOC often has a lower interest rate than many other types of loans due to its increased security of being registered to your property.
Benefits of a HELOC:
- A home equity line of credit generally allows a larger credit limit than a personal line of credit that is unsecured.
- You may use the credit for any purpose — consolidate debt, invest, fund a child’s education, renovate a home, take a vacation, anything!
- Get convenient and fast access to funds — redraw funds when needed. Many lenders have debit cards or quick e-transfers.
- Take advantage of minimum monthly payments of interest only. Payments based on the funds used only, no minimums.
- Pay off the entire loan at any time without penalty — a HELOC is fully open for prepayment.
- Depending on lender, you may convert your HELOC to a fixed mortgage at any time without penalty (certain conditions may apply).
How a HELOC works:
With a HELOC, you’re borrowing against the available equity in your home and the house is used as collateral for the line of credit. As you repay your outstanding balance, the amount of available credit is replenished – much like a credit card.
Qualifying for a HELOC:
To qualify for a HELOC, you need to have available equity in your home. You can typically borrow up to *65-80% of the value of your home (minus your existing mortgage if applicable). Standard qualification criteria applies, your credit score and history, employment history, monthly income/debts, etc will all be reviewed.
*If you currently have no mortgage at all or are purchasing a new property and would like to set up a new HELOC only, the maximum limit available is 65% of your home’s value. If your home is worth $550,000 then the maximum available is $357,500.*
*However, if at time of purchase or refinance a borrower can split their mortgage between variable rates, fixed rates, and a HELOC, giving you the freedom to build a plan that meets all your needs, the maximum limit available is 80% of your home’s value. If your home is worth $550,000 then the maximum financing available is $440,000. In this scenario for example, if you want $440,000 in financing then we can do a 5 year fixed for $240,000 and a LOC for $200,000. The combination of all products cannot exceed 80% of the property’s value (and can be almost any combination). By “fixing” an amount this allows you to exceed the 65% limit and go up to 80%.*
As with many major financial decisions, getting the right advice is key. Discuss your situation with a knowledgeable mortgage broker.
Candace Perko,
Mortgage Broker
