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:
- Sheldon buys a home in Brampton in 2010 for
$500,000 with a $350,000 mortgage.
- In 2014, his home is appraised for $800,000, but
Sheldon still owes $250,000 on his mortgage balance.
- 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.