Home equity line of credit also referred to as a (HELOC) has become a widely popular option to pay off mortgages in recent times in Canada. But what is a home equity line of credit (HELOC)? Basically, it’s a type of revolving mortgage where you can borrow money against your home’s equity (equity is an amount which builds on your home, over the years). You can borrow up to 80% of the equity amount and use the money on anything but only 65% of the value can be in a revolving portion. Which can be used for repaying a loan or paying off credit card debt, you can use it for pretty much anything, it depends on you. Once you return the amount to the lender, you can borrow from the line of credit again. One thing you should know before applying for HELOC is, in this policy, the lender decides on the amount of HELOC you can be approved for. Call us today and speak with one of our team members for further details. We serve across Toronto.
So how does a HELOC work?
Putting it clearly, a HELOC can be as much as 65% of the appraised value of your home and you pay for what you use. Once you have paid it back, you can borrow it again. If you are not able to pay back all the amount borrowed at once, then you can make minimum monthly interest payments and make payments on top to bring down the outstanding balance until the amount is fully paid. It is important to note when getting a HELOC there may be fees that need to be covered throughout the process. These may include the following:
- Legal fees
- Appraisal fees
- Title fees
- Title insurance fees
In the long run, a HELOC loan may take time to pay off but it is in some aspects better than a traditional mortgage. Your monthly payments would be less and you won’t have to worry about principal payments at all (because there is none).
There are some criteria to be qualified for HELOC. Have a look below
- If you have a high credit score ( more than 680) you will be eligible for the best rates, however, if it’s very low you may get to apply at all
- You must have 20% equity balance on your home
- Your debt to income ratio should be between 40-50% (depends on the institution)
- You must have proof of income which will satisify the lender
To know whether you are eligible, get in touch with our team and we can help you out.
There are two types of a home equity line of credit available
- Home equity line of credit combined with a mortgage- which combines a revolving home equity line of credit with a fixed amount mortgage. There is no fixed repayment amount but you will have to pay interest. This will allow you to borrow up to a maximum of 80% of your home’s value with a maximum HELOC of 65% of that available.
- Stand-alone home equity line of credit: which can go up to 65% of your home’s market value and is not related to mortgage
If you have any questions or you just want to find out more, give us a call, we are here to help.