Is a home equity line of credit right for me?

Having some credit available can be a great way to ensure that you are able to fund purchases and products without losing too much of your liquidity. Many Canadians use their credit cards for just this purpose, however relying on credit cards often means paying the high interest rates that go with them. If you are a homeowner with sufficient equity in your home however, a home equity line of credit can provide you with the same security – but at a much lower interest rate.

What is a home equity line of credit?

A home equity line of credit (HELOC) is a revolving line of credit that works in a similar way to a credit card. Once you are approved for a certain amount, you may continue to borrow from that line of credit as long as you are making your regular payments and do not go over your approved amount at any one time.

The difference is the fact that where a credit card is a form of unsecured line of credit, a HELOC is secured with the equity in your home. This security allows the lender to offer you a much better interest rate than you could likely get with a credit card or other unsecured line of credit.

How much money can I borrow with a HELOC?

This depends on how much equity you have in your home. Home equity is built up in two ways: by paying down your mortgage, and through increasing home values. So, if the value of your home is currently $800,000 (regardless of the price you bought it for) and you have $300,000 still owing on your mortgage, then you have $500,000 in home equity.

Now when you apply for a home equity line of credit, most lenders will allow you to borrow up to 80% of your home equity. So in the above scenario, if you were to apply for a HELOC, you could be able to borrow up to $400,000.

Is a HELOC the right choice for me?

If you have the home equity as well as the self-discipline to not borrow more than you can afford to make the payments on, a home equity line of credit can be a really good alternative to other forms of credit. It is also a good product, for those who wish to borrow from their home equity on a regular basis as you will not be required to reapply each time you want to take out a loan.

How can Akal Mortgages help me with a home equity line of credit?

The professional mortgage brokers at Akal Mortgages can help you with your HELOC by using our extensive network of lenders to help find you the best possible rate on your home equity line of credit. We can also help you prepare any information the lender might need in order to approve your application.

If you think that a home equity line of credit might be right for you, we would be happy to help. Contact us today to speak to one of our brokers.