Home Equity Line of Credit

As a homeowner in Ontario, one of the most significant perks of owning a property is the opportunity to build equity over time. Home equity line of credit is the difference between the market value of your property and the outstanding mortgage balance.

As you pay down your mortgage and your home's value appreciates, you build equity in your property. This equity can be used to secure a low-interest loan, known as a home equity line of credit (HELOC).

HELOCs are flexible and can be used for various purposes, such as home renovations, debt consolidation, or even purchasing another property.

Before you opt for a HELOC, it is crucial to understand how it works.

Things to consider when considering Home Equity Line of Credit

The following are some essential things to consider when considering a mortgage with a home equity line of credit.

1. Firstly, the maximum amount you can access with a HELOC is 65% of your home's value. However, the outstanding balance on your mortgage and HELOC combined cannot exceed 80% of your property's value.

To calculate the maximum amount you can borrow, multiply your home's market value by 0.80, subtract the outstanding mortgage balance, and the remaining amount is what you can access through a HELOC, provided it does not exceed 65% of your home's value.

2. Secondly, a HELOC is a revolving line of credit, which means that you have access to a pool of funds that you can borrow from as needed, and you only pay interest on the amount you borrow.

Interest rates for home equity line of credit are typically higher than variable-rate mortgages and are usually tied to the lender's prime rate.

3. Thirdly, when you borrow from a HELOC, you are only required to make monthly interest payments. You will need to make additional payments if you want to repay the principal amount you borrowed.

This means that if you only make the minimum payment, you may end up paying the interest in years, without reducing your outstanding balance.

There are two types of HELOCs available: combined with a mortgage or a stand-alone product. A combined HELOC is the most common type and is often offered by financial institutions. The mortgage portion of this HELOC is a standard mortgage with a term and amortization period, and you make regular payments that go toward both the principal and interest. 

The HELOC portion is a revolving line of credit, where you pay interest only on the amounts you borrow. On the other hand, a stand-alone HELOC is a separate product that you can get without a mortgage.

With a stand-alone HELOC, you can access up to 65% of your home's value and only need to make interest payments until the end of the term, at which point you'll have to pay back the full amount.

When considering a HELOC, it is essential to weigh the pros and cons. HELOCs offer the flexibility to borrow for various purposes at a lower interest rate than other types of loans.

However, there are risks associated with borrowing against your home, and you should consider your financial situation carefully before making a decision.

Looking for a reliable and experienced mortgage broker who can guide you through the process of getting a HELOC?

Look no further than Amrita Bhogal Mortgages! With years of experience in the mortgage industry, our team has the expertise to help you secure a HELOC with a low interest rate and favorable terms.

Not sure if a HELOC is right for you? We can also help answer all your questions and guide you through the many options for mortgages. Contact Amrita Bhogal Mortgages today and schedule your consultation!


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