Home Equity Lines of Credit (known as HELOCs) are becoming increasingly popular among Canadian homeowners due to their flexibility in providing access to credit at a low interest rate.
A HELOC is a secured line of credit that uses your home as a guarantee that you will pay back the money you borrow. As a form of revolving credit, you can borrow funds from your HELOC, pay them back, and borrow them again up to your maximum credit limit.
Two types of HELOCs
There are two main types of Home Equity Lines of Credit: one that is combined with a mortgage and one that is a standalone product.
 |
HELOC combined with a mortgage This first type of HELOC combines a revolving home equity line of credit and a fixed term mortgage under one umbrella. With this product, the HELOC portion of your loan typically comes with no fixed repayment schedule. You’re generally required to pay interest on the money you use, and you can pay down – or pay off – the balance at any time. The fixed term mortgage portion of your loan, meanwhile, will have an amortization period and you will have to make regular payments on the principal and interest as with a typical mortgage. |
 |
Standalone HELOC The second type of HELOC is a revolving credit product that is guaranteed by your home, but not otherwise related to your mortgage. |
Benefits of a HELOC
A HELOC comes with several benefits for homeowners, including:
|
Easy access to credit With a HELOC, you just need to apply once and you get access to the credit you need, when you need it. You can borrow again and again up to your available limit without needing to reapply. |
Lower interest rates Because your loan is secured against your home, interest rates will be lower than other forms of credit, such as unsecured credit lines and credit cards. |
|
Flexible repayment terms While most HELOCs require you to only pay the interest on the money you borrow, you can pay off your balance in full or in part at any time without penalty. |
Use for any purpose With a HELOC, you can use the funds for whatever reason you wish – it is a flexible form of credit that can be used in many ways. |
Responsible ways to use a HELOC
The number of HELOCs in Canada has recently reached its highest level in 10 years1. The reasons for their popularity, in addition to their benefits, is that they make it easier for homeowners to realize other goals that may be otherwise difficult to achieve or take a long time to reach.
Here are some of the ways to use a HELOC:
- For home renovations and upgrades. Since home improvements will typically increase the value of your home, this is a smart way to use your HELOC funds.
- For large purchases. Rather than making a large purchase on a credit card, opt for your Line of Credit for a lower interest rate and convenient payments.
- To buy a second property. Looking to buy a rental, investment, or vacation property? You can leverage the equity in your home through a HELOC to fund your down payment.
A HELOC is an ideal financial tool to use in many cases – but it should be used wisely.
Connect with an MCAP Expert Today
Do you have an MCAP mortgage? Interested in a HELOC? Contact us for more information.
1 Record Mortgage Volumes Push Total Consumer Debt to $2.15 Trillion
