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About a Home Equity Line of Credit: How and When to Use It

Home equity lines of credit (HELOCs, for short) are loans that use the equity in your home as collateral. Equity is the portion of your house you own outright or the difference between your house’s value and the remaining balance owed to the lender. HELOCs allow you to borrow against that equity up to a certain limit, and you can use the money for any purpose.

HELOCs usually have lower interest rates than others, making them a cheaper option for borrowing. And because your home’s equity secures them, they may offer better terms than unsecured loans. Here’s an easy guide on how and when to use them for your benefit:

Getting One

To qualify for a HELOC, you typically need to have a minimum of 20% equity in your home. In addition to the equity requirement, lenders may have other qualifications you will need to meet to get one.

Home equity lines of credit are not the same as home equity loans. The latter presents you with a lump sum you must repay on a set schedule. The former is more like a credit card, allowing homeowners to borrow what they need up to a certain limit and return the amount at their convenience.

The maximum amount of credit you can get is 65 percent of the value of your home. A HELOC can be used with your mortgage to automatically increase your credit limit as you pay off your mortgage principal.

How to Use One

To use a HELOC in place of a mortgage, you must put down at least 35 percent of the home’s purchase price or market value.

The borrower only pays interest on the HELOC during the “draw period,” and they can repay some or all of the loan during this time.

The repayment period is the time after the draw period when you will begin paying back the principal and interest on your loan. The balance will be repaid in full during this time, meaning you cannot get any more money from your HELOC once you have reached the repayment period.

When to Use One

One can use a home equity line of credit for many things, such as 

  • Home repairs: If you use your home equity line of credit to fund home renovations or repairs, you are essentially reinvesting in your home’s value. By taking out a HELOC to improve your home, you are hoping that the value of your home will increase more than the cost of the loan in the long run.
  • Debt consolidation: Consolidating your debts through a home equity line of credit means taking out one loan to pay off multiple debts via one channel. This can simplify your monthly payments by ensuring that your payments are going to the right lender at the right time.
  • College Tuition.
  • Or other expenses you may need money for.

Remember, a HELOC can be used to finance the purchase of a second property or to refinance an existing mortgage. This can offer more flexibility than a traditional mortgage, as you won’t have to make fixed monthly payments.

Get a HELOC from Ottawa Mortgage Services Today

Find a home equity line of credit for you with Ottawa Mortgage Services! Our agents will make the process much easier, so talk to them today by visiting our website and applying for your HELOC loan right away!

Contact Ottawa Mortgage Services to learn more

funding@ottawamortgageservices.ca

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