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Are you thinking about renovating your home? Or maybe starting a college fund for your children? Or perhaps you have high interest debt that you’d like to pay off? If you own a home and you want to borrow money, using your home’s equity is one of the most affordable ways to do it.
A Home Equity Line of Credit, or HELOC, is essentially a cross between a personal line of credit and a second mortgage. HELOC is a popular product in Ontario that gives you the funds you need while keeping the equity in your home. When you own a home, you accumulate home equity through mortgage payments and appreciation of your home’s value. Home equity can be calculated based on the current market value of your home minus the outstanding balance you owe towards your mortgage.
HELOC uses this home equity as security against the money you borrow through your line of credit. Your home is the collateral that guarantees you will repay your loan, allowing you to borrow at a much lower interest rate compared to unsecured credit products, like credit cards. This means you can avoid high interest lines of credit, and lower your overall borrowing costs.
Using HELOC is easier than you might think. The revolving portion of the loan is just like a credit card: You receive monthly statements that show the minimum payment you must make towards the outstanding balance. You can also pay a larger amount or pay off the entire balance at anytime. Like a credit card, you only pay interest on the amount you withdraw. As you pay down the balance, your available revolving credit limit increases, which allows you to access to more money.
HELOC is attached to a chequing account, allowing you to use a debit card for direct payment purchases, write cheques from your account, as well as make cash withdrawals. Your account can also be linked to telephone banking service, allowing you to easily access your account information and manage your finances.
HELOC can go behind most first mortgages without incurring penalties (in most provinces), so there’s no need to change or transfer your mortgage. There are also no additional fees or penalties if you eventually decide to sell your house.
To find out more about a setting up a Home Equity Line of Credit (HELOC) and how the process works, you cancontact us here today.
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