What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit (or HELOC for short) is a revolving amount of credit that’s secured against your home. During the HELOC application process, the lender will decide on the amount of your HELOC. 

Lenders allow total loans (mortgage plus HELOC) of up to 80% of your home’s value. So, if your home is worth $500,000 and your mortgage is $200,000, your HELOC could be as much as $200,000. You can draw from that money at any time, for any reason.

You only make payments once you owe money and will have to make at least monthly interest payments. A fixed term loan or conventional mortgage has an amortization period, whereas a HELOC in Canada typically doesn’t.

What is Home Equity?

Home equity is the difference between the value of your home and the outstanding mortgage amount and/or other loans secured on it. So, with a home worth $500,000 and a mortgage balance of $200,000, your home equity would be $300,000. You can contact me to help find out how much home equity you have in your home.

There are several types of home equity loans, including a conventional mortgage, a HELOC and a reverse mortgage.

How does a HELOC work in Canada?

For a HELOC in Canada, you must apply to a bank or other financial institution to find out whether you qualify.

The more equity you have in your home, the more you can borrow with a HELOC. In some cases, your home equity increases over time as you pay down your mortgage or as the value of your home increases.

A HELOC in Canada can be a maximum of 65% of your home’s appraised value if you borrow from a federally regulated financial institution, such as a bank. Or, if your lender combines your home equity line of credit limit with the balance remaining on your mortgage, it can be up to 80% of your home’s value. The interest rate is variable, changing as the prime rate goes up or down.

Administrative HELOC fees may include:

  • appraisal fees
  • title search fees
  • title insurance fees
  • legal fees

Payments: For a HELOC in Canada, the HELOC process allows for funds to be available through a revolving line of credit. To pay down the balance, you have to make interest payments each month, plus principal payments.

For more information on HELOC requirements and how to qualify for a HELOC in Canada don't hesitate to contact Brenda.

Learn more at her website: |    | Tel: 416-554-3705  

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