Home Equity Lines of Credit: Know the Facts

Home ownership is about more than having a roof over your head.  Your home equity represents real wealth you can tap into to accomplish your goals.  A home equity line of credit, or HELOC, can help.

The ABCs of HELOCs

A HELOC is a line of credit secured by your home.  That opens the door to a preferential interest rate.  Once you’re approved, you can transfer funds to your chequing account from your HELOC and use those funds however you wish, whether it’s to renovate your home, invest, or pay off higher-rate debt.

You’re only charged for the money you use.  Generally, interest owing will be the minimum you’ll have to pay each month.  To better manage your balance, make lump sum payments whenever you like, or set up a regular payment program.

How much could you borrow?

The limit on your HELOC depends on the value of your residence.  While you’re able to borrow up to 80% of your home’s value in total, a HELOC can’t go beyond 65%.  That’s when a HELOC and mortgage can work together.

Here’s an example.  Say your home is worth $700,000.  You can access as much as $560,000 ($700,000 x 80%) of that value, including a maximum of $455,000 ($700,000 x 65%) through a HELOC.  That leaves up to $105,000 ($560,000 - $455,000) to fund through a fixed term mortgage. 

On the other hand, if your mortgage already eats up most of your debt capacity, there’s less room for a HELOC.  So, using the same example, if you already have a $300,000 mortgage, no more than $260,000 can be funded through a HELOC ($560,000 - $300,000).  The flip side?  As your mortgage is paid down, the limit on your HELOC will gradually rise until the 65% threshold is reached.

Let us help you make the right choices

When used sensibly, a HELOC can be a powerful tool to enhance your financial flexibility and even increase your wealth.  That said, with interest rates poised to move higher, how you manage credit is more important than ever.

A Weyburn Credit Union financial specialist is ready to help with borrowing solutions to fit your life.  Speak with us today.