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Mortgage Basics: Everything You Need to Know About Home Equity Lines of Credit

Aug 29, 2016by adminCredit
Mortgage Basics: Everything You Need to Know About Home Equity Lines of Credit

A Home Equity Line of Credit, also known as HELOC, is a line of credit attached to your property. “Equity” refers to the difference between the unpaid balance of your mortgage and the market value of your property. A Home Equity Line of Credit allows you to access that equity at a lower interest than a traditional line of credit. Here are some important things to consider if you’re thinking of applying for a HELOC.

How a HELOC works

A Home Equity Line of Credit works similar to a regular line of credit. In Canada, the maximum amount you can access through a HELOC is 65% of the appraised value of your home. The entire amount of a HELOC is not advanced upfront—instead, you borrow as little or as much of the HELOC as you’d like and only pay interest on the amount you borrow.  Just like a traditional line of credit, you can pay off your HELOC and then borrow from it again. A HELOC can be combined with your mortgage for up to 80% of the appraised value of your home.

HELOC Interest Rate

One of the most important things to remember about a Home Equity Line of Credit is that it is attached to the prime lending rate. This means that the interest rate associated with your HELOC will shift depending on the prime lending rate. A HELOC may have a higher rate than traditional mortgage rates due to their convenience and versatility. However, a HELOC works just like a credit card so you won’t have any additional payments once you’ve paid off the balance of your borrowed equity.

A HELOC is a useful financial tool to have at your disposal if and when you need it. Unlike refinancing, you don’t need to break your mortgage in order to set up a HELOC, so there’s no mortgage penalty associated with opening a Home Equity Line of Credit. For more information about Home Equity Lines of Credit, contact us today at Team Levine.

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