How to Manage Home Equity Lines of Credit

Right now you can get excellent LtVs (Loan to Value ratios) on home equity lines of credit, but is it right for you? Here we’re going to go over everything you need to know about HELOCs and the differences between these and home equity loans. Always do extensive research before brokering equity in your home – speak with one of our Toronto mortgage brokers and see if this is the right choice for you.

What is a Home Equity Line of Credit?

Before we get started, let’s talk about what a HELOC is and isn’t. Every month you paid your mortgage bill you accrue equity in your home – this is like money in the bank that you can borrow against later when you need it. Unlike a home equity loan you won’t borrow a HELOC in one big lump sum. It’s more like a credit card that you use over time when you need to. Some will be structured to have a minimum rotating balance, some will only last for 2 years. The devil is in the detail and it’s important to get the terms just right and that’s why you need a Canadian mortgage broker.

What Can You do With a Home Equity Line of Credit?

You can do anything you want, but it’s important to manage it wisely. You’re effectively gambling with your future and you’ll want to put the money into something that will net you a good return. Education, improvements in your home to bring it up to the same level as other homes in the neighbourhood, and other things that will bring you a return. A vacation to Tahiti might sound nice, but you’ll want to use the equity in your home sparingly on frivolous purchases like these.

What Shouldn’t You Do with a Home Equity Loan?

Any Toronto mortgage broker will tell you to be careful with home improvements. IT’s easy to get carried away with luxury improvements to bring up the value, but there is no category for “super luxury”. Importing Brazilian hardwoods for your entryway and Swarovski chandeliers in a neighbourhood that nets homes around $100,000 isn’t really going to help! You’ll want to bring the home up to the same condition as other homes around you with a few touches that get people excited and interested. Your home is your greatest investment, don’t throw it away!

Home equity lines of credit can be tricky to negotiate, so don’t go it alone! Speak with one of our Canada mortgage brokers today and see what we can do for you. The line of credit may have compounding interest that can rack up pretty fast and if you end up with a predatory lender you could easily get upside down on your home – don’t let this happen to you. We’ll help you through the process step by step and help you understand your rights and responsibilities as a borrower so you know what you’re getting into before you sign on the dotted line.

Learn more about our home equity lines of credit here!

Why Private Mortgages Work

We’ve talked a lot here about how private mortgages work, but it’s time to start talking about WHY they work. Like always you’ll want to speak with one of our Canada mortgage brokers to make sure that this is the best route for you. While they are different, they’re virtually identical to every other sort of mortgage – you’re just dealing with a private lender instead of a bank or government organisation. Like mentioned earlier, everyone is different and you should do your research and talk to use first.

30 Year Mortgages are Out

With the last major changes made to the mortgage rules last year, 30 year mortgages are out. The max amortization rate for any kind of mortgage, including private mortgages, is now 25 years. While this will raise your payments a little you’ll be able to avoid a debt bubble. Any Canada mortgage broker can tell you that the longer your mortgage runs the more time you’ll have for something to go horribly wrong.

Private Mortgages Have Less Default Risk

Private mortgages year after year have been shown to have a much lower risk of default than other kinds of mortgages. Why is that though? Is there some dark magic at play or just better terms? Like all loans you’ll have to be careful about who you work with and what your mortgage terms are. When you work with us as your Toronto mortgage broker we’ll be able to work through your contract and understand if you’re getting a good deal or not. It’s only a lower default risk if you’re getting a deal that’s right for you.

Lower Interest Rates are the Norm

Most borrowers will see their interest rates drop a few percent when they pick a private lender, but some can see even larger jumps. It really depends on where you’re starting at – if you’re a higher credit risk or have a history of bad credit you could run into trouble. That’s exactly why you will want to work with us as your mortgage broker; no one should have to pay more than they have to and we’ll go over every aspect to help you make the most of your terms. Don’t get stuck with a bad deal when you can get the one that’s right for you.

Better Repayment Terms

Private mortgages feature better repayment terms. Most borrowers will see fewer punitive terms like early repayment penalties and late payment penalties with some interest forgiveness thrown into the mix. But everyone is different and each lender is going to offer you as a borrower a different kind of deal. That’s why it’s so important that you don’t do it on your own.

When looking for the right mortgage you need the right help. We’ll be able to help pair you with a lender that not only offers you a good deal now but a good deal later. We’ll make sure that you don’t just get a good teaser rate – you’ll get a mortgage you can live with. Visit our private mortgage page to learn more!

Your Mortgage Refinancing Checklist

So we’ve talked about mortgage refinancing, but here we’re going to go over a quick checklist you’ll need when you come speak with one of our Toronto mortgage brokers. If there are any special documents you need aside from these we’ll let you know – but this list will about cover it. While a few things won’t apply to you, it’s important to read over the whole list! Don’t skip it! Read it right now! Before it’s gone forever – well no not really, but you get the point.

  • Photo or Picture ID – You need a way of proving that you are you. It’s better that the bank is paranoid about proving that you’re you and not some identity thief intent on stealing all of your equity with you none of the wiser. Passports, driver’s licenses, ID cards, anything generally issued by the government will help you establish your identity to a prospective lender.
  • Proof of Income – What do you do for a living? Self employed? Using your business to prove that you’ve got some kind of income rolling in? Paystubs? All of these things will help show that you have an income to pay your mortgage.
  • Bank Statements (Private and Business) – You’ll need bank statements for the last 3 to 6 months (farther back the better) to show that you have money in your account.
  • Divorce or Marriage Documents – Are you receiving alimony, child support from a divorce? You’ll need to bring in your divorce decree. Have you married since your mortgage started and you need to show that you have another income in your household that you want considered as your own? Bring your marriage documents with you.
  • Mortgage Documents – The loan origination document is VERY handy to have. You’ll also want to bring in statements (the most recent is best) from the current mortgage lender to show that you’re current with your payments. Don’t leave home without these if you have them, especially the most recent statement.
  • Tax Forms for 2 Years Prior – Showing proof of your income with your taxes is the best way to go about it. If you want your business income to be considered also bring tax returns for your business too.
  • Utility Bill – Most lenders are going to want proof that THIS is your home. A utility bill usually suffices to prove that this isn’t another mortgage refinancing on a rental property.

There are other things you might need to bring – but you’ll find these out when you schedule an appointment with one of our Canada mortgage brokers. Remember that each lender will be different and their criteria can range widely! Some won’t care if you’re refinancing a rental property or that you don’t have a utility bill. Others won’t care if you bring in information to prove that you and your partner live together. It all ranges wildly from one lender to the next, but when you work with us you’ll find out what you need to know.

Learn more about our great rates for mortgage refinancing here!