What is a Home Equity Line of Credit?
A HELOC or Home Equity Line of Credit is a secured line of credit against your property. Just like a personal line of credit, which is unsecured, a home equity line of credit gives you access to a revolving line of credit but at a much lower interest rate than a personal line of credit.
More Equity on your home = More Home Equity Line of Credit limit
In Canada regulations limit how much you can be approved for a Home Equity Line of Credit. You can have a HELOC limit of up to 65% of the appraised value of your personal residence. Therefore the faster you pay down your mortgage, or the more down payment you provide when purchasing your home the faster you can get access to the HELOC.
Where can you get a Home Equity Line of Credit?
All the Chartered Canadian Banks offer home equity lines of credits along with their portfolio of mortgage products. As well, some of the mortgage lenders, mono line lenders, also offer HELOC’s, but not all.
How do I get approved for a Home Equity Line of Credit?
When you apply for a mortgage is the time that your mortgage broker professional would also request for a HELOC for you. The approval of a home equity line of credit will be based on which lender you are applying to, your income to debt ratios, and whether there is enough equity in your home, or in another way to say it . . . how much mortgage you have in comparison to the value of your home.
You do not necessarily need to get a mortgage in order to be approved for a home equity line of credit. Should your home be free and clear, or if you have been living in it for a long time and the value in comparison to the mortgage balance is significantly greater, then you can also apply for a HELOC.
Why do I need a HELOC, what would I use it for?
A home equity line of credit can be a very handy and effective resource to have for when you need extra money at low interest rates. You can use your HELOC for many different purposes. Here are a few common ones:
– pay down high credit card debts
– use towards purchasing a second property or investment property
– a source of emergency money for when the need arises
– purchasing larger items that are expensive enough that you would not want to pay by cash
What is the interest rate for a Home Equity Line of Credit?
Home equity lines of credit interest rates are based on the lenders prime rate plus a certain percentage. With most lenders HELOC rates range anywhere from Prime +.50% to Prime +1.0% depending on the credit limit. The higher the limit the better the discount.
Have you been considering getting a Home Equity Line of Credit but not sure if you are qualified for one, or how much you can be approved for? Contact us and we would be happy to help you with your HELOC inquiry’s.