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A home equity line of credit (HELOC) is a way for homeowners to gain access to funds by securing their mortgage against the loan or line of credit. By leveraging the equity in your home instead of your credit rating and assets, you can receive more money and a better interest rate.

Here are some tips on getting a good deal on your HELOC.

Shop Around

Often, lenders offer different terms based on an application. This can include different penalties or fluctuating introductory rates. It’s smart to speak with a variety of lenders and institution to get a sense of the different deals and then decide what is best for your financial situation. When you home is being used as collateral, it’s worthwhile to exercise more due diligence.

Once you’ve chosen a lender, be sure to ask about how the rate can change, especially if you are taking advantage of an introductory rate. In addition, inquire as to whether your rate will fluctuate with prime or if it is fixed.

Do you Have Enough Equity? 

Your equity in your home determines the loan or line of credit amount you can receive. It can also influence the interest rate.  The simple formula is comprised of approximately 75% of a home’s value (determined by an appraiser) minus the amount owed. Some lenders will go as high as 80%. Ultimately, this formula ensures that you don’t borrow more than the value of your home.

The less you owe towards a mortgage, the more you can borrow against the value of your home. You might want to wait until you have enough equity.

Spend the Money Wisely 

You want to use a HELOC for very specific reasons like education, medical or home renovations. For those with market savvy or business aspirations, using the money to invest or to start a business is common.

Whatever the money is used for, pay it back immediately. Like any loan or line of credit, this will limit the amount of interest you pay, and can help when applying for this product in the future.

A HELOC is a great way to fund certain aspects of your life or to increase cash flow. Putting more effort into your application and understanding the process will go a long way to making sure you enjoy the benefits of this financial product.

With the country still dealing with the COVID-19 pandemic, it is getting increasingly difficult for Canadians to meet their monthly financial obligations. Working through a job loss or reduction in hours has affected many of us, and government funded programs – like the Canadian Emergency Response Benefit (CERB) – can only cover so much. Households are finding it tough to keep food on the table, let along pay down their mortgages and other high-interest debt, such as credit cards.

Homeownership at times like these have its benefits. You can use the equity you have built over the years to consolidate some of your high-interest debts into one, easy to manage monthly payment. Even in a risky financial climate, like this one imposed by COVID-19, you can pay down your debts as well as cut down your overall monthly expenses. Interest rates are also currently at a record low, so it has never been a better time to start looking into consolidating outstanding debt. 

What Is Home Equity & How Can You Access It?

The difference between the current value of your home and the unpaid balance of your mortgage make up your Home Equity. Over time, your equity grows as you make more and more of your mortgage payments, and the percentage of ownership rises. Other factors, such as market activity, can also substantially increase the amount of equity that you have access to and can leverage. 

Homeowners looking to access their Home Equity have two options for financing: A Home Equity Loan or Home Equity Line of Credit (HELOC). A Home Equity Loan, or Second Mortgage as its often referred to as, allows you to withdraw a lump sum of money based on your available equity. You would then make monthly payments at a locked interest rate until the time of renewal. This is great if you are looking for a larger sum of money – anywhere from $20,000 to even a $1,000,000 depending on the home value.

If you choose to refinance, or take out additional equity, can use this extra money for anything from debt consolidation, investments, home renos, education, or other life expenses.

Borrowers looking to access their available home equity also have the option to pursue a Home Equity Line of Credit (HELOC). This allows you to withdraw cash from the line of credit and repay it as you find necessary, as long as the minimum monthly interest payments are made. You do not need to take out the whole line at once, it can be used more like a credit card, but at much lower interest rates. Like Second and Third mortgages, homeowners with multiple high-interest credit card debts, or high-interest loans find HELOC’s very appealing. This ability to allow the borrower to pay only one interest-only payment, at a much lower interest rate, can make monthly financial obligations much more manageable. 

Advantages Of Consolidating Debt Through A Second Mortgage or Mortgage Refinance:

Increased cash flow: Multiple high-interest debts consolidated into one lower interest rate can increase your available monthly income and help you save money over time.

Customized financial plan: Our Mortgage Professionals can help you create a loan and debt repayment plan, spread over a 2-5-year period, to help reach – and maintain – your financial goals.

Streamlined payments: Multiple larger monthly payments can be combined into one single lower monthly payment with a lower interest rate that can help you pay down your debts faster.

Credit score: Individuals with a poor credit score can qualify for a second mortgage. This can help Borrowers to pay off their high-interest debts and start rebuilding their credit. When applying for a future mortgage or refinance, these factors can make all the difference.

Principal repayment: When individuals are forced to pay off high levels of credit card debt using only their income, they are often not able to pay the whole sum. Instead, they are left paying the minimum payments which often pay solely for the interest itself. This endless loop can leave someone in a great deal of debt, stress, and substantially limit their financial standing. A Second Mortgage, or HELOC, can allow you to pay the total sum of your credit card debt and only worry about making the appropriate monthly payments.

As you can see from the examples above, tapping into your home equity through a Second Mortgage, or Refinance, can be quite advantageous. A Private Mortgage is also a great option for potential borrowers with bad credit that are worried about the often complicated approval process. Since homeowners are using the equity built into their home, they are seen as less of a risk to potential lenders. The application process becomes much quicker and more streamlined. Home Equity Loans can also be very beneficial to self-employed individuals who have a difficult time with reportable income.

If you are interested in accessing your home equity and consolidating your high-interest debts, the trusted Mortgage Brokers at Canadalend can help get you approved quickly and easily. With access to a very large pool of private lenders, banks, and credit unions, Canadalend will work tirelessly to get you the best mortgage rate for your individual needs.

Call Canadalend today at 905-881-0242 or email us at info@canadalend.com to speak with an experienced Mortgage Broker who can help you get out of debt faster.

Over the years, home equity lines of credit have quickly become one of the more popular ways that homeowners leverage the value of their homes. However, when borrowing against your home it is beneficial to be more cautious around what you spend that money on – for instance, it might not be best to spend a HELOC on vacations, or new home electronics. But that leaves the question, what should homeowners use a HELOC for?

1) Home Improvements

Using a HELOC to make improvements to the backyard or inside the home can be a great way to increase the overall value of the property. Installing a pool, renovating the kitchen or bathroom, even adding a deck can be a daunting task to finance. Using a home equity line of credit can be just the thing you need to kickstart that project. Once completed, these home improvements usually add more equity to your home.

2) Emergency Funds

Financial experts say that it is a good idea to have about six months’ worth of expenses put away should an emergency arise. The equity in your home can be used as a low-interest alternative to credit cards and other high-interest loans when these unforeseen events happen. Having a HELOC already in place can give you peace of mind in an otherwise chaotic time.

3) Refinancing Debt

If you have multiple high-interest debts, getting a home equity line of credit can be a great way to consolidate at a much lower interest rate. These forms of debt are unsecured, and as such can come with rates as high as 20%! However, since a HELOC is secured against your home, the lower interest can potentially save you thousands, as well as make the number of monthly payments much more manageable.

4) Long Term Investments

Your HELOC isn’t just available to use on your home. Some homeowners choose to invest in stocks or even the real estate market. The risks associated with those investments could be high, so please do your homework! If you are looking to invest into something a little riskier with a higher return, there are many other options available to you.

5) Paying For Education

If you have a child (or several!) that are going to college or university, or even thinking about going back yourself, a HELOC could be a great way to cover tuition or any supplementary income during that time. Since the rates are relatively low, a HELOC can be a better option over a traditional school loan or credit card.

For more information contact the Mortgage Experts at Canadalend today at 1-866 iCAN LEND or better yet, Apply Online and one of our Agents will call you!

Securing a loan with your home equity is one of the easiest ways to get low interest rates. If you need a lot of cash, it’s a great way to use your most valuable asset (your property) to secure a loan.

While tapping into your home equity may seem attractive, you need to be careful. Home prices are higher in Canada than ever before and rising quickly, which makes home equity more plentiful. But if you aren’t careful, it’s your property that’s on the line after all. There are a few things you need to keep in mind if you want to use this powerful tool.

What You Need To Tap Into Your Equity

Using your home equity is fairly easy. But you will need to meet a few minimum requirements before you’re able to.

Equity

First, you’ll need to have sufficient equity available. Most lenders will need you to have enough to justify a loan. A good rule of thumb is to only consider tapping into your home equity if you have at least 20% in your home.

Credit Score

Lenders will have their own minimum credit score requirements. If your credit score is in the mid-600s or higher, you will have many opportunities for loans with lower rates. But having a lower credit score won’t necessarily hold you back. Lower credit scores will usually just mean higher APRs for your loans.

Debt-to-Income Ratio

Lenders want to see a reliable source of income for their borrowers. But they also want to make sure you’re not already struggling with debt. So, they’ll have a look at your debt-to-income ratio. If your debt-to-income ratio is lower than 40%, it shouldn’t stop you from tapping into your equity.

To be safe, it’s best to not take on significant amounts of debt. Unless you’re consolidating debt, if your debt-to-income ratio is already high, you might want to think twice.

Have A Good Reason

The best safety tip for tapping into your equity is to make sure it pays off. There are several ways you can ensure you’re getting an excellent deal. Frivolous spending with borrowed money is unsafe in many circumstances, not to mention pointless from a purely financial point of view. The goal is to produce a net gain for yourself.

Consolidating Credit Card Debt

Consolidating higher-interest debt is arguably the best reason to tap into your equity. Credit cards can easily set you up for a rough time if you don’t pay your balance at the end of the month. Credit card interest rates are notoriously high, with most at 19%. Some credit cards go as high as 29.99%.

You can use your equity to secure a debt consolidation loan. You would then use the loan to immediately pay off all your credit card balances. The result is you have one large debt to pay off instead of many smaller ones. But your interest rate on a home equity loan will usually be far lower than the rate on your credit card. That means you can save a lot of money and save your credit score at the same time.

Home Improvement

Using your equity to secure a home improvement loan is another move that just makes sense. When you make improvements to your home, you add value to it. That’s why tapping into your equity to allow you to sell your house for a much higher price just makes sense!

If your current equity allows for it, you can add a basement or another addon to your property. With the value this creates for your home, you could sell it for more.

Retirement

There is one way to tap into your home equity that stands out for its retirement benefits. A reverse mortgage can help you afford retirement through a repayment-deferred loan.

If you’re simply short on cash for retirement, a HELOC is likely your better choice.

Education

If you or someone close wants to advance their education, tapping into home equity is one way to do it. Like some of our other examples, education expenses are an investment for which you can get a great return. Because some equity loans, especially HELOCs, are so inexpensive, they are good options for paying education expenses.

Place Safe Limits

Regardless of what you want to spend your money on, there is always a financial line you cannot reasonably cross. That’s why if you’re not borrowing money to reduce your debt, you can’t afford to borrow too much.

One factor to be aware of is the loan’s APR. An APR can be sneaky because it’s not quite the same as an interest rate. For example, a $10,000 loan with a 5% APR and a 5-year repayment term will mean a monthly repayment of $188.71, but a total of $1,605.48 in interest payments. But what if the repayment term is just 2 years? It would cost you $443.43 per month and you would pay $642.26 in interest.

To make sure you don’t overburden yourself. Do the math on any loans you are considering taking. Fortunately, there are plenty of online APR calculators that can determine your monthly repayments and the total amount you’ll pay in interest.

What Is A Safe Loan?

Safe is a subjective term. But there’s a reason many lenders will cut you off with a debt-to-income ratio higher than 43%.

If you’re already overburdened with debt, it’s risky to take on more debt. So, ask yourself what you will get out of your equity. Tapping into your equity can help you reduce debt if you approach it safely.