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Home Equity Line Of Credit

If you have built up equity in your home beyond your original down payment, you may be able to use it to obtain cheap and flexible financing. Through our selection of lenders we can obtain a secured line of credit worth up to 80 per cent of the appraised value of your home. This is one of the least expensive sources of financing available. We can also access lines of credit up to 80% on the value of your home as a 2nd mortgage.

How Does a Home Equity Line of Credit Work?

A home equity line of credit is a cross between a personal line of credit and a second mortgage. Your home is collateral for the loan. You do not have to draw the money until you need it. You can draw all or part of it at any time, and pay some or all of it back as you wish. Think of it as low-cost revolving credit.

How Much Can I Get?

A home equity loan is similar to a conventional mortgage. Lenders set a limit on the loan amount, usually from two-thirds to three-quarters of your home’s value, minus whatever mortgage remains on your house. Say your home is worth $500,000 and you have $100,000 left on your mortgage. The difference between your mortgage and 80% of your home’s value ($400,000) is $300,000. You should be able to obtain a line of credit of $300,000, provided you meet the lender’s requirements.

Are There Interest Costs on a Home Equity Loan?

The interest rate on a home equity line of credit usually floats at a fixed amount at or over the prime rate. A typical rate would be at prime plus ½% percentage point. Lenders usually only collect interest only payments on secured lines of credit whereas mortgages are based on Principal and Interest payments. Remember too that lines of credit are demand loans, so your lender can demand repayment in full at any time… but likely won’t.

Are There Fees?

Fees for setting up a home equity loan in Canada are about the same as for a mortgage loan. You will have to pay appraisal fees and legal fees, disbursements, and GST. Mortgage for Less can often scout out the lowest set up fee option or special promotions where the lender will absorb these costs.

How Can I Use My Home Equity Line of Credit?

A home equity line of credit can be a useful financial tool in many situations. For example:

  • They are ideal for taking advantage of investment opportunities, perhaps in the stock market. Plus, unlike interest on your mortgage, interest on funds borrowed for investment is deductible against income earned, which can save you money on your income tax.
  • They can be useful for home renovation projects, and other undertakings where irregular bills have to be paid. The advantage of a home equity loan over a regular loan is that you don’t have to take out a large lump sum. You only draw the amount you need, when you need it. That means that you don’t ring up interest costs if you’re not putting the money to use.
  • They can serve as a useful and relatively low-cost source of emergency cash, allowing you to redirect funds that would otherwise be tied up in your emergency fund into investments that have a higher return.

A home equity line of credit can be an excellent financial resource, particularly if you set it up at the same time you are arranging your mortgage, which keeps administrative fees to a minimum.

A Word of Warning

Just because you can get a home equity line of credit doesn’t mean you should. If you have a hard time spending within your means and often carry a big balance on your credit cards, you might want to avoid further temptation. After all, there’s nothing to stop you from using your entire line of credit on new clothes and restaurant meals and after your spending spree is over, you have to pay back what you borrowed. You’ll basically have added several thousands of dollars to your mortgage, with little to show for it.

If you are a disciplined spender, though, a home equity line of credit can be an excellent financial resource. A specialist from Mortgage for Less can help you figure out whether a home equity loan is right for you.

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