Home Equity Lines of Credit - HELOC's
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What is a HELOC?HELOC is the acronym for Home Equity Line Of Credit.
A HELOC is a Secured Line of Credit which means that it is backed (secured) by the value of the property it is attached to. The HELOC is registered on the title of the property and therefore when the property is sold, the balance owing on the HELOC must be paid out just the same as any remaining mortgage balance. Because a Home Equity Line of Credit is secured by the property, interest rates are generally much lower than the interest rate on a line of credit that is unsecured. |
A HELOC is a form of revolving credit which means that you can withdraw funds from it at any time as long as you don't exceed the limit, of course, just like a typical credit card.
When it comes to repayment, if you have a balance owing on the HELOC, you must make at least a minimum payment each month. For most HELOC's, the minimum payment is equal to the interest accrued during the previous month. However, some will have a different repayment structure.
The interest rates on HELOC's are based on the Prime Lending Rate and therefore are subject to change...similar to variable or adjustable rate mortgages.
If the Prime Lending rate changes, so will the interest rate on your Home Equity Line of Credit.
When it comes to repayment, if you have a balance owing on the HELOC, you must make at least a minimum payment each month. For most HELOC's, the minimum payment is equal to the interest accrued during the previous month. However, some will have a different repayment structure.
The interest rates on HELOC's are based on the Prime Lending Rate and therefore are subject to change...similar to variable or adjustable rate mortgages.
If the Prime Lending rate changes, so will the interest rate on your Home Equity Line of Credit.
Qualifying For A Home Equity Line Of Credit
Because a Home Equity Line Of Credit is secured by the equity in your home, you must have enough available equity in order to get one.
If you don't have a mortgage on your home, as long as you qualify, you can register a HELOC with a limit of up to 65% of your home's appraised value. For example, if your home is worth $300,000 and you have no mortgage on it, you can add a Line of Credit for up to $195,000.
If you don't have a mortgage on your home, as long as you qualify, you can register a HELOC with a limit of up to 65% of your home's appraised value. For example, if your home is worth $300,000 and you have no mortgage on it, you can add a Line of Credit for up to $195,000.
If you have an existing mortgage balance on your home, as long as you qualify, you can add a HELOC. The limit on the HELOC cannot be more than 65% of your home's appraised value and combined with the remaining mortgage balance cannot exceed 80% of your homes value. For example, if your home is worth $300,000 and you still owe $100,000 on your mortgage, you would only be able to register a HELOC for up to $140,000 because the sum of the remaining mortgage balance and the HELOC limit cannot exceed 80% of the home's value.
Another example would be if your home is worth $300,000 and you only owed $30,000 on your mortgage, you would still only be able to register a HELOC for a maximum of $195,000 because the Line of Credit limit cannot exceed 65% of the home's value.
Just like qualifying for a mortgage, you'll need to qualify financially for the HELOC.
Another example would be if your home is worth $300,000 and you only owed $30,000 on your mortgage, you would still only be able to register a HELOC for a maximum of $195,000 because the Line of Credit limit cannot exceed 65% of the home's value.
Just like qualifying for a mortgage, you'll need to qualify financially for the HELOC.
Common Uses For HELOCs
Although you can use the funds for whatever you want, just like any other form of credit, it's important to use it responsibly.
Because a secured line of credit usually has a very low interest rate, it can be a very useful credit tool.
Some of the more common uses for a Home Equity Line of Credit are:
Please contact me to find out if a Home Equity Line Of Credit is right for you!
Because a secured line of credit usually has a very low interest rate, it can be a very useful credit tool.
Some of the more common uses for a Home Equity Line of Credit are:
- Debt Consolidation - Pay off the higher interest credit card balances and personal loans with the low interest line of credit
- Investing - Some people choose to use the funds to purchase various investments hoping to earn a return greater than the interest rate on the line of credit. **Please consult a professional before purchasing investments.**
- Home Renovations - Use the line for credit to finance home improvement projects
- Tuition - Finance the kids education
- Purchase additional properties - Use the funds as a down payment to purchase a rental property or vacation home
- Large Purchases - Travel, Vehicles, Start a Business, etc.
Please contact me to find out if a Home Equity Line Of Credit is right for you!
