4 minute read
FINANCE
As homeowners pay off their mortgage over time, they’re also building up home equity, and acquiring the financial flexibility it can provide.
If you have a significant equity stake in your home, generally at least 35 percent or more, you can tap into that value with a home equity line of credit (HELOC).
Advertisement
What is a home equity line of credit?
Like a credit card, a line of credit provides revolving access to a fixed amount of cash. You borrow what you need from that total and pay it back over time, plus interest.
Say you have a line of credit worth $75,000 and borrow $15,000 to fund a major purchase. You still have $60,000 left to use, and that amount increases as you pay back the borrowed funds.
There’s no interest on funds you don’t borrow from the line of credit, and the fees and costs charged for a HELOC are typically lower than for most types of loans.
With a home equity line of credit, the maximum amount the homeowner can access is usually a set percentage of the home’s value, generally between 60 and 80 percent, minus the amount still owing on the mortgage. For instance, if your home is worth $500,000 and you owe $175,000, you could access up to $225,000 (500,000 x .8 = 400,000 - 175,000 = 225,000).
Unlike credit cards, interest rates are typically low on home equity lines of credit, because they are secured by the property itself. The consequence, however, is that your lender has a claim to your home if you are unable to repay your debt. As such, it’s wise to avoid borrowing too much against the value of a property and running the risk of losing your home.
What can a home equity line of credit be used for?
A line of credit is like having a financial security blanket you can use for any expense, unexpected or otherwise, that’s too big for your savings to handle.
A home equity line of credit can be a great way for homeowners to pay for home improvement and renovation projects, major purchases such as a vehicle, medical or education costs, to fund investments, or to cover emergency expenses.
Use a HELOC to increase the value of your home while also raising your equity stake
A renovation project that increases the market value of your home will, in turn, give you greater home equity. Whether it’s a new kitchen or bathroom, finishing a basement, or even adding a backyard pool, there are countless ways to make your home more marketable, boosting its value and the value of your equity stake.
If you want to renovate but don’t have the savings to pay for it, you could finance the project by borrowing against your home equity, making use of your ownership stake while simultaneously increasing the home’s value.
When not to use a HELOC
In general, it’s wise to steer clear of using a HELOC if your income is unstable or inconsistent, threatening your ability to make regular payments. A HELOC is also not the best option if you don’t need to borrow very much money, as it would likely be cheaper to use your savings and avoid the costs and fees involved with a loan or line of credit.
Finally, if you’re thinking of getting a home equity line of credit, run the numbers first to make sure you’ve got the financial bandwidth to withstand the bigger payments you’ll have to make if interest rates go up. HELOCs typically have variable interest rates, meaning the interest charges will rise and fall over your borrowing period, altering your repayment amount from month to month.
This article is not intended to provide financial or financial planning advice, please call or email Moya Financial and they will be more than happy to chat with you!
MOYA FINANCIAL 747 Brown’s Line, Toronto, ON M8W 3V7 Call: 416.255.1742 Email: main@moyafinancial.ca
FINANCE...p6
Is a Home Equity Line of Credit right for you? The Experts at Moya Financial share some insights.
PUBLISHER’S NOTE...p8
How’s about some sunshine, smiles, and a little Guns ‘N Roses?
COMMUNITY...p9
Highlighting one of Office146’s Members: Life For Lives.
HUMBER COLLEGE UPDATE...p10
See what’s new this month at the Humber Lakeshore Campus.
Nominations now open for the GEMS of EtobicokeLakeshore.
COVER STORY...p12
Long Branch’s Amanda Kirkland survives Squirrel Mageddon!
JAMES MALONEY...p14
Scholars is accepting new students for the summer break!
Don’t procrastinate get ahead of
the game.
We are helping all students to use this time to catch up!
Contact us to find out more
Print Magazines & Podcasts Supporting Local Across Ontario
Let’s Get Back To Business!
BECOME A LOCAL EDITOR www.supportlocalmagazine.com
