With so many mortgage products that allow you to borrow equity from your home that it can be hard to know which option is right for you. Ultimately, the best thing to do is to sit down with your mortgage broker, since they can bring up questions you hadn’t thought about. But having some kind of knowledge about which products do what, can give you a good idea of what is best for you when it comes to borrowing equity from your home.
In this article, I will discuss home equity lines of credit (HELOCs) and when they might be the best choice for you.
What is a HELOC?
A home equity line of credit, also known as a HELOC is a revolving line of credit. It works in a similar way to a credit card where you get a borrowing limit that you cannot exceed and you only pay interest on the amount that you have borrowed at any given time. The main difference however, is that your HELOC is tied to the equity in your home. This means you’ll have a lower interest rate than a credit card, but it also means you risk having your home go into foreclosure if you can’t make the payments.
When should you opt for a HELOC?
There are many scenarios in which a HELOC can be your best course of action. These include:
- When you want to consolidate your higher-interest debt. Using a HELOC to consolidate your high interest debt can help you pay off your debt faster and improve your credit score.
- When you want to pay for a home renovation. Home renovations can be expensive, and are even more expensive if you have to use a high-interest credit card. A HELOC allows you to borrow from your home equity, while you increase the overall value of your home with a home renovation.
- You want to invest in a business – More and more Canadians are becoming entrepreneurs, but oftentimes, banks won’t want to take the risk of lending you your start-up capital. If you are starting a business, one way to get the capital you need is with a home equity line of credit.
- You need to pay for emergencies – HELOCs can also help you pay for emergencies, such as a vehicle repair or unexpected medical cost. It can give you peace of mind knowing that you have a HELOC to borrow from in the event of an emergency.
Do you think a home equity line of credit might be the right choice for you? If so, give me a call and we can discuss it further!