A HELOC is a secure type of credit whereby the lender uses your home as a guarantee that you will pay back the money you borrow from them. This is a special type of revolving credit – that enables you to borrow money, then repay that money, and borrow it again until you reach a maximum credit limit. There are two kinds of home equity lines of credit:

Home equity line of credit combined with a mortgage: This type of home equity line of credit, also known as a re-advanceable mortgage, requires you to only pay interest on the money you use and comes with a fixed term and amortization period. The credit limit is up to 65% of your home purchase price or current market value.

Buying a home with a home equity line of credit combined with a mortgage: This type of HELOC means that you can finance part of your home purchase with your HELOC and the other part with your fixed term mortgage. This requires you to have 20% down payment or 20% equity in your home.

The primary distinction between a HELOC and a conventional mortgage is the interest rate and the payment schedule. The advantages of a HELOC include:

• You are only charged interest if you withdraw money
• You can use a debit card or a cheque to withdraw money
• It is revolving – meaning you can pay it off and reborrow
• Finally, interest rates can be lower

Qualification Requirements for HELOC

• Minimum down payment or equity of 20%.
• Minimum down payment of equity of 35% if you prefer to use a standalone home equity line of credit to replace a mortgage.
• Proof of a good credit score.
• Proof of income.
• Proof that your debt relative to your income is acceptable.
• A passing grade on the government “stress test”.
• A home appraisal may be required.

To learn more about Home Equity Line of Credit and if this is a good decision for you, contact our team of mortgage specialists today.