A home equity line of credit also known as a HELOC is a secured form of credit. The lender uses your home as a guarantee that you’ll pay back the money you borrow.
Home equity lines of credit are revolving credit. You can borrow money, pay it back, and borrow it again, up to a maximum credit limit.
Is a HELOC right for me?
A HELOC is a great way to access the equity in your house. This gives you the ability to grow funds quickly and payback
Pros
Small interest-only payments
No penalties to pay off (while there are no penalties, HELOCs are at higher rates. If you are planning on borrowing the money for more than 7-8 months there can be an advantage to taking a closed mortgage at a lower rate)
Can be advanced multiple times with no penalties.
Cons
Higher interest rates
interest-only payments (while this can be a pro as your payments are minimal, it also can be a con as you will never pay down any of the principal amounts)
We find a lot of Canadians misuse the HELOC and end up paying almost double the interest they should be paying on their mortgage.
How do I qualify?
You only have to qualify and be approved for a home equity line of credit once. After you’re approved, you can access your HELOC whenever you want.
You’ll need:
a minimum down payment or equity of 20%, or
a minimum down payment or equity of 35% if you want to use a stand-alone home equity line of credit as a substitute for a mortgage
Your lender will also require that you have:
an acceptable credit score
proof of sufficient and stable income
an acceptable level of debt compared to your income
You will need to pass a “stress test”:
You will need to prove you can afford payments at a qualifying interest rate which is typically higher than the actual rate in your contract.
When you have a mortgage broker on your side, you get valuable advice that is tailored exactly to you. If it’s not a good decision we will be honest and may have another suggestion to help you achieve your goals.
Reach out to us today and get informed, we are just one call away!