10 benefits of getting a HELOC
August 06, 2021
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If you are a homeowner in need of cash, there are many ways you can use your home as collateral to get loans from financial institutions. Also, as a homeowner, you can quickly build equity over time using your equity on the property to secure low-cost funds, which is equivalent to a second mortgage. The loan can be a one-time loan or HELOC (home equity line of credit).
What are HELOCs?
Home equity line of credit operates in a similar tradition to what is obtainable under credit card loan applications. However, the difference is that you can borrow the sum of money you need at a flexible interest rate which averages at five per cent (5%), compared to a home equity loan where you will be given a lump sum above what you need.
As a homeowner in Canada, you can borrow up to sixty-five per cent (65%) of your property using a home equity credit line, with interest payable only on the amount of money you took from your credit line. So, for instance, if you have five hundred thousand Canadian dollars ($500,000) available in your credit line, you can keep the loan open without paying any interest till you plan to put the money to use.
Some banks offering this service have different methods available for their customers to access the fund. Some of the means of accessing the funds include online transfer, using a credit card connected to your bank account, or simply writing a check.
Phases of HELOCs
The home equity line of credit can be divided into two phases: the draw period and the repayment period. The draw period often ranges from ten years and above. During this period, you can access the available credit in your credit line and use any amount based on your discretion. In most home equity line of credit contracts, you only pay a fragile and interest-only payment during the draw period. However, you may be requested to pay more in some specific cases, especially towards reducing the loan principal.
Once the draw period ends, the next phase is the repayment period. This means you are no longer eligible to withdraw additional funds during the repayment period, not until your previous loan balance is cleared. Also, as part of the repayment requirements, you will be paying principal and interest every month, although the interest payments every month vary depending on your interest rate.
Pros of a home equity line of credit in Canada
If you are a homeowner in Canada thinking of generating extra cash through HELOCs, here are some of the benefits of a home equity credit line you need to know.
Easy access to funds
Among other mortgages, a home equity line of credit gives you easy access to funds you can use for your home projects, such as kitchen remodeling, home renovation, to name a few. In addition, lenders know you have equity in the property, so getting a loan through this system will be easy compared to the traditional line of credit.
Interest charges may be tax-deductible
What you plan on expending the loan on will determine whether it will be deducted from your tax or not. For instance, if you use the fund for renovations to your home, you can deduct the amount you expend on the project during your tax filing. So, to qualify as tax-deductible, the loan must be spent on the property. Furthermore, this system of borrowing is an efficient borrowing strategy for investing.
Flexible repayment options
When you borrow from a massive loan of this nature or from other sources aside from the home equity line of credit, the monthly repayment (principal and interest) may be running into thousands of dollars. However, in Canada, the home equity line of credit is reasonable, and repayment is structured conveniently for the borrower.
Flexibility
A home equity line of credit assures you that you can access the fund anytime, provided you meet the requirements and all the necessary paperwork regarding your equity in the home has been finalized
You can borrow what you need
Home equity line of credit operates a different system when compared to home equity loans or credit card loans. Under home equity loans, the lender is simply lending you a lump sum, which may exceed what you need, thus expanding your debt profile. However, a home equity line of credit gives you the right to state in precise terms the amount of money you need proportional to your equity on the home. You can use the fund for any project you have in mind. So, in the end, you will only be paying interest on the amount of money you use on your credit line and not on the total value of the credit line as a whole.
HELOCs can raise your credit history
People need money for different purposes. For example, it could be for business expansions, pay bills, finance a project, amongst other reasons. Although you can save up money from your income for your different projects, however, if you are working on a big project beyond your savings, resorting to a loan can be your ideal funding alternative.
Before any lender like commercial banks loans you money, they will verify your repayment history to determine how you keep up with your repayment on other platforms. To have access to more loans, you must ensure you have a good repayment history, and significant consideration will be given to the different types of credit you have. So, adding a HELOC to your credit portfolio and keeping up with your monthly repayment plan will improve your credit profile. With this positive review, you can push for more loans from other sources since your credit score shows you have a good credit history.
While there are different sources of getting a loan through home equity, a home equity line of credit offers homeowners a better plan. With HELOC, homeowners can access flexible and non-aggressive repayment terms and access funds at the fixed interest. This fixed interest can be used for any project without obtaining any form instructions from the lender on how the money will be spent. Would you like to access the best home equity line of credit? Then, check out this page: mortgagemaestro.ca.