HELOC — What it means & How it works

What is HELOC

First off in this process is understanding what a HELOC is, HELOC stands for home equity line of credit and is a line of credit secured by your home. HELOC’s in the past where allowed to go to 80% of the value of your property. A few years ago the government changed it to only 65% of the value which was a big change for many people especially those who used the money for investing. To get to the full 80% in today’s market we must add an additional fixed portion of 15% to the process and you will now have two individual payments to be made.

How HELOC Works

The first step in any application for a HELOC is that we must see what the property is actually worth, this is done by a professional appraiser who will compare your property to the others that have sold in your area. This value is where we would begin this process from there we would then seek out a lender who would finance the house to 65% on a line of credit. Not all lenders can offer HELOC’s anymore, those backed by banks and who do balance sheet lending can still offer them. Most of the mortgage companies that do just mortgages no longer offer this product.

Once we have an appraisal in from the appraiser and we have established your credit worthiness and employment income we can now proceed to the lender. Most lenders will have guidelines that will need to be reviewed and once they are met we can then register the HELOC on title of your property.

HELOC – Things You Need to be Aware Off

One of the things to be aware of is that HELOC’s fall under the area of collateral mortgages, the bank may register a higher amount on your property than the actual amount you received so read the documents closely when you are signing to make sure what it is that the bank registered. A good mortgage broker will be able to point these amounts out to you. The importance of knowing what is registered is the difficulty in moving your mortgage should you decide to leave the bank for another lender.

So now you have the HELOC in place and will generally only make an interest only payment, HELOC’s are open term meaning you can pay down as much of it as you like and as the balance lowers you have access to that money again. One of the reasons the change was made a few years ago is because the government thought Canadians accessed their houses equity too easily. They may have been right but as you can see the banks found the way around it by offering you a HELOC to 65% and a fixed of 15% to still get you to the full 80%.

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