What Is a Home Equity
Line of Credit?
Barrie homeowners can have fast and easy access to large
funds by taking advantage of their home equity with a home equity line of
credit. A home-equity line of credit (HELOC) is commonly used to consolidate
debts, lower monthly mortgage payments, and even for life purchases, such as
home renovations or school tuition. Much like a line of credit or credit card,
Barrie homeowners have to apply to a lender such as a bank or other financial
institution that provides mortgage refinancing and home equity services to be approved
for a home equity line of credit. A home-equity line of credit is often
preferred because they essentially provide the most money for the lowest cost,
or low interest rate, compared to other loan options.
HELOCs in Canada cannot exceed 80% of the current home
value. At the same time, homeowners should remember that their HELOC plus your
current mortgage balance cannot exceed 80% of the appraisal of the home.
- Barry, a Barrie homeowner, purchases a home in
2013 for $100,000 with a $20,000 down payment and an $80,000 mortgage from the
- In 2014, Barry’s home is appraised for $200,000
but still owes $75,000 on the mortgage.
- Barry can tap into $85,000 from his home equity
(80% of $200,000 = $160,000 minus the outstanding mortgage balance of $75,000).
Home Equity Line of
Credit vs. Fixed-Rate Loans
A home-equity line of credit is very similar to a credit
card or line of credit because, like a credit card or line of credit, a certain
spending limit is pre-approved by a lender or financial institution, and
monthly payments are made to pay the interest of what was spent, which is
variable interest rate that can change over the term of the loan. Homeowners
have more flexibility with HELOCs as they can choose to pay at their own pace,
making maximum repayments on money borrowed or just enough to cover the
interest. For convenience, most banks also provide homeowners with a credit
card for their home equity line of credit
A fixed-rate loan differs in its structure compared to a
home equity line of credit, though both are considered home-equity loans and
have fixed terms. With a fixed-rate home equity loan, homeowners borrow a lump
sum loan and must pay back the entire principal plus a fixed interest rate that
has been agreed upon by the bank and homeowner over a given term. The interest
rate and monthly payments remain the same over the entire term of the loan.
How a Home Equity
Line of Credit Can Benefit Barrie Homeowners
A home-equity line of credit can benefit Barrie homeowners greatly
in times of financial need compared to other borrowing options, such as credit
cards or fixed-rate loan. A home-equity line of credit provides a quick and
easy source of cash for homeowners with a much lower interest rate than credit
cards and other loans. For this reason, many homeowners choose to borrow
against the equity of their home to pay off credit card balances since the
interest rates are much lower than their credit card’s interest rate. With a
home-equity line of credit, Barrie homeowners only borrow as much as they need
for the things they need when they need it most with a home equity line of