A Homeowner Line of Credit is a revolving line of credit that allows homeowners to borrow against the equity in their property. Home equity is the difference between the market value of your home and what you owe on your mortgage. Are you looking to access the equity in your home with a secured line of credit for easy access to funds?
Here’s everything you need to know about tapping into your home equity.
A Homeowner Line of Credit works like a credit card. You get a credit limit of up to 65% of your home’s equity, and you can borrow, pay back, and borrow again as needed. You only borrow what you need, when you need it, without applying for a new mortgage each time. If you need up to 80% of your home’s value, a mortgage portion can help bridge this gap. Once the mortgage portion is paid down, the credit limit will become accessible.
Because the line of credit is secured by your home, it generally comes with a lower interest rate than loans, unsecured line of credit or credit cards. The rate is typically variable and changes with the lender’s prime rate, plus a certain amount. For example, depending on the type of Homeowner Line of Credit, you might hear rates like “prime minus half” or “prime minus one.”
Types of Homeowner Line of Credit Products:
Homeowner Revolving Line of Credit: Each lender has a name for this type of secured line of credit, but the concept is typically the same. It combines a mortgage with a revolving line of credit. As you pay down your mortgage, the available limit on the line of credit increases (up to 65% of the home’s value at the time of approval), giving you access to additional funds. You can also split the line of credit into different mortgage terms to reduce interest costs.
For example, if you purchase a new car, you can lock the funds used for the purchase into a 5-year mortgage term at the current 5-year mortgage rate, with a 5-year amortization schedule, keeping you on track to achieve your financial goals.
All-In-One Mortgage: This type of product integrates your secured line of credit with your chequing account. The interest charged fluctuates based on the balance in your account and line of credit, much like an overdraft. Like a Homeowner Revolving Line of Credit, you can create sub-accounts to save on interest costs and keep your finances organized. For more information, check out Manulife One.
Home Equity Line of Credit (HELOC): This secured line of credit is independent of the mortgage. If you currently have a mortgage and do not want to break the term, a HELOC can be placed in second position on the property title, behind the mortgage charge. The limit does not fluctuate with this type of secured line of credit.
Is a Homeowner Line of Credit Right for You?
A Homeowner Line of Credit can be a powerful financial tool when used responsibly. It offers flexibility and typically lower interest rates than other forms of credit. Before applying, ask yourself the following questions:
- Do you have sufficient equity in your home to qualify?
- Are you comfortable with fluctuating interest rates?
- Can you manage your repayments effectively?
One of the key benefits of a Homeowner Line of Credit is that you only need to qualify once—when you first apply for the product. However, be aware that some lenders may require you to requalify if a borrower (such as a spouse) passes away.
If your home is paid off or you have a low mortgage balance and want the flexibility to borrow against it, this can be a great tool. Think about planning for retirement, starting a business, home renovations or helping your children with school or their first home purchase.
If you have any questions about Homeowner Lines of Credit or other mortgage-related matters, feel free to reach out to me. I’m here to help you make informed decisions about your financial future!