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Home Equity Line of Credit (HELOC)
A HELOC is simply securing a line of credit with home equity. This will allow you the freedom to borrow from your equity for a variety of wants and needs. 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% 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 HELOC 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 from a HELOC?
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.
Is there interest on a HELOC?
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 half a 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 costs to obtain a HELOC?
Fees for setting up a HELOC 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:
- Allows you utilize available home equity through a revolving line of credit and allows you the freedom to borrow from your home equity whenever you need
- 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.
Important notice about a HELOC
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.
Required documents for HELOC
- You need to provide a copy of your driver’s licence, passport, or other government-issued photo ID (but not a Health card).
- SIN - Social Insurance Number (while not required but helpful)
Why is it required?
Identification is used to verify your identity. While it’s a measure for preventing fraud, it’s essential for us to properly fill out your mortgage application.
It’s also a requirement so a lender can provide you with funding.
Important things to note
- All ID text, photos and numbers must be clearly visible.
If your income is salary or wages, provide:
- A recent pay stub showing the pay date, pay amount, your name and the employer’s name.
- A job letter on a company letterhead detailing your start date, position, guaranteed salary/wages, and a human resources contact name and phone number.
If any of your income comes from a bonus, commissions, overtime, a contract, gratuities or investments:
- Provide the most recent two year’s Notice of Assessments (NOAs) from Canada Revenue Agency (CRA).
If your income is through self-employment, provide:
- The most recent two years of Notice of Assessments (NOAs) from Canada Revenue Agency (CRA)
- Your business license, articles of incorporation, or GST registration number
- Self-employed applicants may have to show two years of unaudited accountant-prepared financials, depending on the lender and circumstances
If you earn rental income:
- Provide a copy of each lease, as well as either:
- A Canada Revenue Agency T776 Statement of Real Estate Rentals
- or two years of T1 generals (personal tax returns)
- or two years of Notice of Assessments (NOAs) from Canada Revenue Agency (CRA)
If you earn Alimony/Child Support:
- Provide Notice of Assessments (NOAs) from Canada Revenue Agency (CRA)
- The full separation/support agreement
If on maternity/paternity leave:
- A job letter on a company letterhead detailing your start date, position, guaranteed salary/wages, and a human resources contact name and phone number
- Ensure your job letter shows the return date and salary/income upon return
Why is it required?
Income verification is required for your application so a lender can verify your ability to manage your mortgage payments.
Also provides essential information for us to assess your situation. Most of all helpful information to determine which mortgage product is appropriate for you.
Important things to note
It’s fraud if you falsify and/or exaggerate your income. Fraud for shelter is the most common form of mortgage fraud in Canada. Therefore we won’t tolerate this irresponsible and harmful behaviour.
It is important to be honest and precise with your income so that you aren’t getting a mortgage you can’t manage to afford.
Current Mortgage Statement
A mortgage statement is simply a document prepared by your current lender and provided to you upon request. This document will detail your current mortgage.
Your mortgage statement will show:
- your information,
- the current mortgage balance,
- the current interest rate,
- amount remaining on both the mortgage term and amortization,
- your payment amount
- and includes contact information for your mortgage holder
- it may also provide you with a history of your repayment
Why is it required?
This document is essential for the lender you apply to. As a document it allows a lender to assess your current mortgage and review your management of that mortgage.
Important things to note
Must show your name, property address, balance or original mortgage amount, and payment
A property appraisal is an estimated value of a home, in this case for one you wish to purchase.
Most noteworthy the appraisal is not a document that you will provide but rather pay for, as a requirement from your lender. Appraisals ordered by a lender are not shared with you as it’s their document.
This document is a cost surrounding your mortgage. While the cost can vary depending upon the location and size of the property.
The cost of an appraisal starts around $350 and can go over $500 (plus tax).
Why is it required?
An appraisal is a requirement by a lender so they have a reasonable idea of your home’s current market value.
They use this value to assess the home before they are willing to lend against your home.
A void cheque is simply an unusable cheque that details your transit number and account number. It’s essential for a lender to deposit and withdraw funds from your account.
Why is it required?
It’s an essential document that allows a lender to fund your mortgage. Also confirms the funds are in fact deposited to you, the mortgagor.
Important things to note
- Make sure that the cheque you provide is an account in your name, if it isn’t it won’t be a valid document.
- If you don’t provide a void cheque provided by your banking institution, make sure that you properly void a cheque of your own.
- It’s highly recommended you get a void cheque from your bank. Can easily be obtained from their website or physically at a branch location.
Would a Home Equity Take-Out better suit your needs?
Getting a Home Equity Line of Credit is one way to tap into your home's equity. Have you considered a Home Equity Take-Out? Rather than a line of credit you receive a chunk of your home equity at once.
Have a question?
Feel free to send us an email with any questions you may have about the required documents for a HELOC.
We'd be happy to help!
How to get started with a HELOC
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Nick and his staff were very efficient and helpful. Nick in my opinion went above and beyond what was required in arranging my new mortgage. This has been my experience over the past 25 years when dealing with Mortgage for Less and Nick specifically.
Nick Mitskopoulos was professional, trustworthy, efficient and proactive. His expertise as a broker was evident from the moment we met him. We had encountered 2 other brokers before but we decided to go with Nick because of his professionalism and sense of ethics. He was also patient and answered our numerous questions. We definitely recommend him as a mortgage broker. Keep up the good work Nick!
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I have used Mortage For Less for all my mortgages since purchasing my first home nearly 15 years ago. From our first experience Nick has always been amazing at providing advice and negotiating great deals, and we have been a loyal customers ever since. Nick also jumped in quickly to help us work out a line of credit through our mortgage when we inquired a few years ago, and he provides interesting updates on the market. I plan on sticking with Nick for as long as I own a home.
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Access your equity with a HELOC
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