A line of credit to help conquer your goals
Buying a home is likely one of the largest purchases and most lucrative investments you’ll ever make. But, it can also be the most powerful financial borrowing tool that you have.
While both a home loan and a home equity line gives you access to the equity in your home, a home equity loan gives you a one-time lump sum of money. Whereas a home equity line of credit (HELOC) provides convenient, ongoing access to funds when and as you need it.
The more equity available in your home the more funds you have available to borrow. The home equity line of credit (HELOC) is a revolving line of credit that’s secured against your home loan. And, with it, you have the freedom and flexibility to use the funds as you need and will benefit from repaying the line of credit with interest-only payments on the funds you actually use.
A HELOC can be used to cover current or future expenses or help you achieve financial goals. Canadians will often use a home equity line to consolidate high-interest debt, finance large expenses such as a home renovation project, pay down their mortgage principal or, save it as an emergency fund for a rainy day.
With access to cash at a lower price point than a traditional home loan and the flexibility to use the funds as you wish, the home equity line of credit can be a tool that gives you incredible buying power. Talk to us today to see if a home equity line is right for you.
Frequently asked questions
HELOC stands for Home Equity Line of Credit. It is a revolving amount of credit that is secured against your home. During the HELOC process, the lender will decide on the amount of your HELOC. Lenders allow total loans (mortgage plus HELOC) of up to 80% of your home’s value. So, if your home is worth $500,000 and your mortgage is $200,000, your HELOC could be as much as $200,000. You can draw from that money at any time, for any reason.
What is the difference between a Home Equity Line of Credit and a Home Equity Loan?
While both a home loan and a home equity line gives you access to the equity in your home, a home equity loan gives you a one-time lump sum of money. Whereas, a home equity line of credit (HELOC) provides convenient, ongoing access to funds when and as you need it. The more equity available in your home the more funds you have available to borrow. A HELOC gives you the freedom and flexibility to use the funds as you need and allows you to repay the line of credit with interest only payments on the funds you actually use.
What can I use a HELOC for?
A HELOC has a unique advantage in that it can be used, repaid, and used again, while only paying interest on the portion of the funds that have been used. A HELOC is a good solution for many funding needs, such as launching or supporting a small business, covering medical and health care expenses, accessing funds for purchasing a second property, financing home renovations, repairs, construction, and all kinds of other household projects.
Is a HELOC or a second mortgage better?
A HELOC is actually a type of second mortgage. The main difference between the two is how you will receive your loan payment. A second mortgage is a lump sum, whereas the HELOC is a line of credit. The HELOC functions like a credit card with a credit limit and minimum monthly payments. You will be required to make fixed-rate payments however, this is typically added to your mortgage principal. For individuals with an existing mortgage, who have good credit and more than 20% equity in their homes, the most affordable second mortgages will be in the form of a home equity line of credit. However, if the homeowner has weaker credit and/or little equity in their property, a second mortgage through a trust company or private lender would be required.
Can I have more than one line of credit?
Yes, you can have multiple home equity lines of credit outstanding, even on the same property, as long as you hold enough equity in your home to meet the lender’s guidelines. If you own multiple properties and have the equity available, you can have as many mortgages and equity lines or loans as you can qualify for. As long as you’re not overleveraged or owe more than your properties are worth, there’s no limit to the number of home equity loans or HELOCs you can have at one time.
How do I qualify for a HELOC
Lender requirements will vary, but here's what you'll generally need to get a HELOC: A debt-to-income ratio that's 40% or less. A credit score of 620 or higher. A home value that’s at least 15% more than you owe. The process of getting a home equity line is similar to any purchase of a refinance mortgage. Here the are the steps we’ll follow: First, we’ll determine whether you have sufficient equity and how much is available for you to borrow. Then, we’ll gather the necessary documentation before you apply to ensure the process goes smoothly. We will present your file to lenders on your behalf and once selected, apply for the HELOC. We will then review the lender’s disclosure statements and begin the underwriting process which can take anywhere from a few hours to a few weeks. The final step is loan closing, when you sign paperwork and the line of credit becomes available. Get started with your mortgage refinance here.
When to consider a home equity line of credit: