The Home equity line of credit, or HELOC as its become to be known by is a very common financing vehicle to allow property owners with a ready access to capital.
More specifically, a HELOC is a secured line of credit with the security coming in the form of the equity in your property once the first mortgage is taken into account. That being said, its also possible to have a home equity line of credit registered in first mortgage position, but its not typical.
As a line of credit, the amount of funds approved can be drawn down at any time by the borrower for whatever requirements they may have.
The outstanding balance does not have a scheduled repayment term, but interest will be charged and paid monthly on any principal amounts that are outstanding.
In many cases, a Toronto home equity line of credit can be secured at or near the best available rates for a first mortgage offering so long as the total loan to value remains under 80%.
Effective April 18, 2011, secured lines of credit will no longer be able to be insured under CMHC or the two other insured mortgage providers in Canada, thus reducing the amount of potential financing an applicant could potentially secure through a home equity line of credit to no more than 80% of the fair market value.
There are many, many uses for a home equity line of credit, but the common threads among most applications of funds from a secured line of credit such as this are easy access and flexible repayment.
There can be times when there are unexpected and un-budgeted expenditures that occur where there won’t be enough cash flow coming in to cover off the credit card bill before it comes due. A home equity line would allow you to pay off the balance from your credit card during the zero interest period and carry the balance at a very low interest rate until the outstanding balance can be repaid.
If a home owner is doing a home renovation project, a line of credit may be all they need to finance the project on their own, reducing the cost and hassle of having to set up a separate financing facility.
Sometimes individuals, such as the self employed, can have more erratic monthly cash flow compared to a salaried employee or wage earner, creating a need for a flexible source of funding to cover off the months when there are more cash outflows required to be paid than inflows coming in.
The list of applications though is truly endless.
And even if you set up an equity line for a specific purpose, once the event has passed and the principal balance has been repaid in full, the line of credit remains in place for you to use for future needs.
The qualifying requirements for a home equity line of credit will be very similar if not identical to those for an “A” credit mortgage from a primary bank or institutional mortgage lender.
A credit decision by a mortgage lender is going to be based on a good credit profile, strong security value, and documented proof of your ability to repay the mortgage. With respect to mortgage repayment or debt servicing, most lenders will apply their 5 year posted rate to calculate debt service on a line of credit that has a variable rate in order to make sure that the applicant’s cash flow resources will be sufficient to service the debt even if there is some upward movement in the interest rates.
The Toronto Home Equity Line of Credit is a very popular lending program that is provided by most banks and front line lending institutions. To get a better idea of the different types of programs that are out there and which ones may be better suited to you requirements and needs, we suggest that you give us a call and arrange a time to speak with a member of our team.
We’ll go through all the relevant information with you and make sure all your questions get answered as soon as possible.