Home Equity Lines of Credit (HELOC)
Getting you the mortgage you deserve
Home Equity Lines of Credit (HELOC)
A HELOC (Home Equity Line of Credit) is considered a second mortgage and differs from a traditional mortgage. A HELOC is similar to a credit card because the entire loan isn't advanced upfront. You use the line of credit, as you need it, to access funds up to the allowable limit. Like a credit card, you can access what you have repaid, thus the name revolving line of credit. Your repayment amount is your withdrawal amount plus interest or minimum interest-only payment amount like a credit card. You can make payments of principal and interest at any time without a penalty. The maximum loan-to-value for a HELOC is 65% of the value of your home.
A HELOC must be repaid in full within a certain period (usually 25 years amortization). For example, you can pay interest-only payments for the first 10 years and then pay the principal in the final 15 years. Because there is no regular payment of principal and interest, it is unknown what the balance will be at any time during the mortgage, so after the tenth year, you would have to make balloon payments to pay off the mortgage by the end of the amortization as per your amortization schedule.
In addition to accessing the money you have paid back, another important difference with a HELOC is that the rate is variable. It is tied to your bank's prime rate and can change up or down depending on the rate set by the Bank of Canada.
