Most Canadians need to turn to credit every now and then, but credit cards and other types of loans often carry with them some pretty high interest rates. If you are a homeowner, however, and you have some equity built up in your home, there is another option called a home equity line of credit (HELOC).
What is a home equity line of credit?
A home equity line of credit (HELOC) is a revolving loan that is secured to your home equity. Most lenders will allow you to borrow up to 80% of that home equity. So, for example, if your home is worth $500,000 and you owe $400,000 on your mortgage, you have $100,000 in home equity and can borrow 80% of that or $80,000 in a HELOC.
Now say you get approved, for a $80,000 HELOC – you may borrow any amount up to $80,000 and pay it back on a revolving basis. You only pay interest on the amount that you have actually withdrawn from the HELOC – not the amount that you have been approved for.
In this sense, it works the same way that a personal line of credit does. The main difference is that where a personal line of credit is an unsecured loan, a HELOC is a secured loan.
Advantages of getting a home equity line of credit
There are many advantages to getting a HELOC over other types of credit. Some of the major ones are listed below:
- You have access to large amounts of cash when you need it. Once you get approved for a HELOC, you never have to reapply as long as you own your home. That means you can access cash whenever you need it providing you still have borrowing room in your HELOC.
- You don’t need to have perfect credit. Because approval is based on how much equity you have in your home, you don’t need to have great credit to qualify for a HELOC.
- Interest rates are lower than other types of loans. Again, because the loan is secured, interest rates on HELOCs are much lower than on other types of loans.
If you are a homeowner and you are interested in learning more about home equity lines of credit – or you are interested in applying for one, the team at Akal Mortgages is ready to help. Contact us today to set up and appointment.
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