Tag Archives: HELOCs

How to make the most of your HELOC

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By Sean Cooper

Special to the Financial Independence Hub

A HELOC, short for “home equity line of credit,” is a revolving line of credit secured by your home’s equity. HELOCs have a reputation for being a convenient, flexible and low-cost way of accessing credit. A HELOC can be a great way to borrow money cheaply (it sure beats using your credit card!), as long as you do it responsibly.

Using your HELOC responsibly means using it for something that is likely to increase your net worth and having a plan to pay back the money you borrow. (It can be tempting to make interest-only payments, but you’ll literally find yourself no further ahead.) To address this, most lenders have recently introduced stricter qualification rules for HELOCs. You’re required to pass the mortgage stress test (2% + your HELOC rate), in addition to some lenders making you qualify based on your HELOC limit rather than your current outstanding balance.

The amount that you can borrow by way of a HELOC has also decreased over the years. With a HELOC today, you can access up to 65% of your home’s appraised value. Note that your mortgage balance and HELOC together can’t be more than 80% of your home’s appraised value.

Now that you have a better understanding of HELOCs, let’s take a look at a couple ways to make the most of your HELOC.

Home Renovations

A popular use of HELOCs is home renovations. But before undertaking a major home renovation, it’s important to ask yourself why you’re doing the renovation. Continue Reading…

Is a HELOC right for you?

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

A home equity line of credit (HELOC) is a convenient way to access the value in your home. You might have seen commercials on TV or been offered one by your mortgage agent. Not only can you get a much lower interest rate than you can with an unsecured line of credit, you can also be approved for a sizeable loan. It’s tempting to have quick access to a lot of money, but is a HELOC right for you?

A HELOC is a secured line of credit that uses your home as security. As with a mortgage, the money you borrow is secured by your home. In Canada, as long as you can show that you can carry the debt, you can borrow up to 65% of the value of your home, provided you keep at least 20% of the value as equity.

For example, if your home is worth $1 million and you owe $400,000 on your mortgage, you can borrow up to $400,000 against your home ($1 million x 80% = $800,000 – $400,000 owing = $400,000).

There are many upsides to getting a HELOC. Depending on the value of your home, you can potentially borrow a large amount of money. Interest rates on HELOCs are significantly lower than on unsecured lines of credit (typically about prime + 0.5%). You can take out money or repay it at any time without penalty. And you can go up to 25 years before you have to pay back what you’ve borrowed.

One of the most appealing HELOC features is that the minimum monthly payment is just the interest that’s accrued. Using a HELOC calculator on that $400,000 line of credit example above, the monthly payment at today’s best HELOC rate of 3.7% is just $1,233. The minimum monthly payment on a traditional line of credit is typically 2% of the outstanding balance: $8,000 on a $400,000 balance. Even a traditional mortgage would require a much higher monthly payment. This feature alone is a big part of why HELOCs are so appealing.

Possible downsides of HELOCs

However, HELOCs also have their downsides.

Because the minimum monthly payment on a HELOC is just the interest, it can feel like it doesn’t cost you much to borrow money. But when you don’t repay the principal, your costs over the long run are actually much higher than with a traditional loan.

Let’s look at an example comparing a regular $50,000 loan with a rate of 4.7% repaid monthly against borrowing $50,000 at 3.7% from your HELOC repaid in a lump sum at the end the loan term.

If you pay the loan over five years, your monthly payment will be $936.83 and you’ll pay $6,209.80 in interest over that time.

Continue Reading…

Congratulations – Your credit score has just gone up!

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Richard is the author of a soon to be released book called "What the Average Joe Needs to Know". He needed a headshot for the website and the other promotional materials related to the book. ©2011, Sean Phillips http://www.RiverwoodPhotography.com
Richard Moxley

By Richard Moxley, eCreditFix.ca

Special to the Financial Independence Hub

Congratulations – Your credit score has just gone up!

I would love to say it increased just because you are reading this article but in reality it is because Equifax has implemented a change in its algorithm (the computer scoring system that banks use to predict the chances of you paying on time).

These changes have had a huge impact on the report and 80 per cent of Canadians have seen a jump in their personal credit score. So if you were declined for financing previously, you might want to try again.

Here are some of the main changes that have been made:

Mortgage Payments now affect your credit score

As of June, your mortgage payment history now affects your credit score. If you are like most Canadians and paying your mortgage is top priority, then this will be one of the main reasons why your score has jumped.

Lines of Credit report different than your Credit Card

Before the recent changes, a high balance (any balance over half of the limit) on a line of credit or a credit card would lower your score the same amount. Now, a high balance on your line of credit will not hurt your score as much as if you have a high balance on a credit card. Continue Reading…