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Home Equity Line of Credit Is an Easy and Quick Source of Funds for Cambridge Homeowners

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With the costs of daily living for families such as emergency expenses and other financial hardships life throws at you, it is possible to fall into a cycle of debt that may seem relentless. When a dollar is needed most, whether to consolidate debt or to pay for the kids’ university tuition, Cambridge homeowners are wise to consider the benefits of taking a secured loan against their home equity in the form of a home equity line of credit.
 
A home equity line of credit can unlock a large amount of money from Cambridge homeowners’ home equity, or the value of the shares a Cambridge homeowner actually owns, with the help of a lender or bank. A limit of up to 80% of the value of a Cambridge home can be secured for a loan through a home equity line of credit, as per Canadian law, as long as the combined home equity line of credit plus the outstanding mortgage balance does not exceed 80% of the home’s current market value. Since lenders and banks use the home as collateral to loan money, homeowners risk the devastating chance of losing their home for good if minimum monthly payments cannot be made. Fortunately, home equity line of credit payments are flexible and allow homeowners to pay at their own pace. Some homeowners try to pay off the loans right away, while others may not have the means but have the flexibility to pay the bare minimum, which is commonly just the interest on the balance of the home equity line of credit. It is wise to only borrow as much as you can afford to pay back over the term of the loan or else risk foreclosure on your home.
 
Here is an example of how to calculate how much homeowners can qualify for their home equity line of credit:
  1. Cameron’s Cambridge home was recently appraised at $200,000.
  2. Cameron still owes $50,000 to the bank for a mortgage he took out for the home.
  3. The maximum amount Cameron can borrow against his home equity is determined by taking 80% of the home value ($200,000 x .80=$160,000), then subtract the mortgage balance still owed ($160,000 - $50,000) to give you a home equity line of credit limit of $110,000

Home Equity Line of Credit vs. Fixed-Rate Loans

 
Anybody with a credit card can understand how a home equity line of credit works. Like a credit card, a home equity line of credit has a pre-approved spending limit set by a lender or other financial institution, and the homeowner only makes monthly payments on how much was actually borrowed plus a variable interest rate that can either go up or down throughout the term of the loan. A home equity line of credit, or HELOC, differs from a credit card though because the homeowner’s home is used as collateral against the home equity line of credit to secure a large line of credit with a very low interest rate compared to other consumer loan options such as credit cards.
 
Another common home equity loan Cambridge homeowners will hear of is the fixed-rate loan. The fixed-rate loan differs from the home equity line of credit, because instead of simply having access to a large amount of money and paying back what you used plus interest, homeowners will receive a lump sum loan and will have to make a pre-determined monthly payment with a fixed interest rate for a fixed term. Fixed-rate loans do not provide the same flexibility as a HELOC because the same payment needs to be made every month no matter what, or else risk the lender foreclosing your home.
 
Cambridge homeowners are wise to go with a home equity line of credit in times of financial hardship to consolidate debts or pay for life’s big purchases, such as school tuition, while maintaining a flexible, lower risk payment schedule.

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