Home Equity Line of Credit
What is a HELOC?
A home equity line of credit, or HELOC, is a revolving line of credit that uses your home’s current market value as collateral. Here at 911 Mortgage Brokers – The Mortgage Centre, we can set up a line of credit for you which you can easily access and use for just about anything.
Your HELOC is fully open for prepayment and can be done without penalty. You can also use it for home renovations, investments, a vacation, a child’s education, and debt consolidation.
You can borrow as much as you need, but only up to your available credit limit. And it can be for the first 5, 10, or 25 years. This means you can choose to pay as little as interest-only. Also, up to 65% of your home’s value may be used.
If the HELOC is combined with a regular mortgage, the combined value of your HELOC and mortgage can be up to 80% of your home’s value. But as you pay off your mortgage, you may be able to borrow more from your HELOC.
Your lender provides checks or a credit card that you can use to access funds from your HELOC. HELOCs often come with variable interest rates, so as noted above, the cost of borrowing with a HELOC can rise or fall over time.
Example:
You’ve had your home appraised by an approved appraiser off the lender’s list and its current market value is $800,000. Your mortgage balance on your home is $500,000 and you have no other liens other than the mortgage. The disposable equity in your home is calculated by multiplying your home’s value by 80% and then subtracting what you owe on your mortgage.
Your home’s value multiplied by LTV Maximum of 80% less balance owed on mortgage equals Credit limit on HELOC
Ex: ($800,000 x 80%) – $500,000 = $140,000
Choosing a home equity loan vs. a HELOC
Home equity loans and HELOCs are similar in that they both allow you to borrow against home equity. And you’ll need to provide information about your income and mortgage to apply for either one. But borrowers often use them for different purposes.
A home equity loan gives you cash in a lump sum, so it’s a good choice if you need money for a one-time purchase. For example, suppose you’re buying all new appliances for your kitchen. If you’ve chosen the appliances and you know the total amount you’re going to spend, you might want to take out a home equity loan to borrow what you need all at once. You can then easily budget for the fixed payments to repay the loan.
On the other hand, a HELOC can be used multiple times during the draw period, so it gives you flexibility. This is an advantage if you need to finance ongoing expenses, or if you’re not sure how much cash you’re going to need. For example, if you’re remodeling your garage, you might first pay a contractor to redo the floor, later buy and install new cabinets, and finally hire a painter. A HELOC gives you the option to borrow exactly what you need at each step, so you don’t have to estimate all the costs from the start.
Chat with a 911 Mortgage Broker today, and kick-start the conversation to see if getting a Home Equity Line of Credit is right for you.
