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!