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What Brampton Homeowners Should Know About Home Equity Line of Credit

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Some Brampton homeowners may not be aware of the immense amount of cash they have available at hand’s reach through refinancing options such as a home equity line of credit. Whether homeowners need money to pay for a home renovation or to consolidate debts, a home equity line of credit is one of the best ways to borrow the largest amount of money for the lowest interest rate. Like a credit card, a home equity line of credit is a revolving credit which allows borrowers to pay as much as they can from month to month at their own pace without a fixed number of payments or payment amount.
 
A home equity line of credit, also known as HELOC, allows Brampton homeowners to borrow money against the equity of their home with a low interest rate and is often used to consolidate debt, lower monthly mortgage payments, or to pay for life expenses such as school tuitions. It is very easy for homeowners to apply for a HELOC to unlock money from their home equity.
 
In Brampton and the rest of Canada too, homeowners can qualify for a home equity line of credit up to 80% of the market value of their home. More importantly, Brampton homeowners should be aware that their HELOC and current mortgage balanced combined cannot exceed the loan to value ratio, which in Canada is 80% of the home value. Here is an example of how a homeowner can calculate how much money they can borrow against their home equity:
  1. Sheldon buys a home in Brampton in 2010 for $500,000 with a $350,000 mortgage.
  2. In 2014, his home is appraised for $800,000, but Sheldon still owes $250,000 on his mortgage balance.
  3. Sheldon can qualify for a home equity line of credit for $390,000, which is the difference between 80% of current home value ($640,000) and the outstanding mortgage balance ($250,000).
It is beneficial for Brampton homeowners to know that as they pay more money into the balance of their mortgage, more credit becomes available to them.
 

Fixed Rate Loans vs. Home Equity Line of Credit

 
A fixed-rate loan is another type of home equity loan that homeowners can apply for through a bank or financial institution. A fixed-rate loan, like its name implies, is a large lump sum loan that the homeowner borrows from a lender and agrees to pay a fixed monthly payment with a fixed and agreed-upon interest rate over a given term. There is not much flexibility with a fixed-rate loan as the same payment needs to be made every month and the interest rate will never change throughout the lifetime of the loan.
 
Brampton homeowners can benefit greatly with a home equity line of credit because of their flexibility and ease of use.  Like a credit card, homeowners apply for a HELOC through a bank or lender and can make interest-only payments if need be or use discipline and pay off as much of the loan as possible every month. Some financial institutions even provide a credit card for their home equity line of credit. Unlike a credit card though, HELOCs have much lower interest rates and often homeowners take out a home equity line of credit to consolidate credit card debts and reduce all debts to a single monthly payment. Sometimes life can be unpredictable, and a home equity line of credit provides comfort in Brampton homeowners by allowing them to pay what they can while borrowing as much money as they need to, whenever they need to.

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