Home Equity Line of Credit (HELOC): What is HELOC, What are the rates, Which Bank Have Them Best?

Check out the details about Home Equity Line of Credit (HELOC): What is it, What are the rates, Which Bank Have Them Best? from this article. Various information regarding Home Equity Line of Credit (HELOC): What is it, What are the rates, Which Bank Have Them Best? and other relevant details are included in this article.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit allows individuals to borrow money by using their home equity as collateral. The lender uses the home equity as a guarantee that the borrowers will pay back the money.

HELOC is a line of credit that allows borrowers to withdraw and repay funds as needed. However, it can only be done up to the maximum credit limit

What is HELOC?

Being one of the most valued assets, the borrowers often use the money borrowed via HELOC for home renovations/improvements, education, investments, paying bills, etc.

HELOC allows individuals to borrow money at lower interest rates than any other line of credit. There are 2 main types of HELOC –

Combined with a mortgage

• In this type, HELOC is combined with a fixed-term mortgage.
• There are no fixed repayment amounts for HELOC. The lender usually asks to pay the interest on the money that the individuals borrow.
• Although people must make regular payments on the mortgage principal and interest.
• The credit limit offered on this type of HELOC can be up to 65% of the home’s market value or purchase price.
• In addition, this type of HELOC can also have other types of credits under a single credit limit, such as business loans, car loans, personal loans, etc.
• People can set up these loans as sub-accounts. HELOC can also be used to pay back the debt that an individual has with other lenders.
• The credit funds available in this type of HELOC will go towards the credit limit when people pay their mortgage principal.

Stand-alone

• This type of Home Equity Line of Credit is guaranteed by the home of the borrower.
• Mortgage is not related to this type of HELOC.
• The maximum credit limit does not increase as people pay their mortgage principal.
• The peak credit limit can go up to 65% of a home’s market value or purchase price.
• This type of HELOC can also be used as a substitute for a mortgage. This means the borrowers can use the stand-alone HELCO instead of getting a mortgage to purchase a home.
• If someone uses this type of HELOC to buy a home, they don’t need to pay the interest and principal on fixed schedules. However, there can be a higher down payment or requirements of more equity.
• Nevertheless, when someone uses this type of HELOC to buy a home, they get more flexibility.

What are the rates of HELOC?

People just need to qualify for the HELOC once. When someone gets HELOC approval, they can access it anytime they want. However, lenders usually require a good credit score ( or an acceptable one according to their policy).

Borrowers also need to show that they have a stable and sufficient income source. Usually, people need to pass a stress test. It tests whether they can afford payments at a qualifying interest rate.

To qualify for a HELOC, people need to pay an equity/minimum downpayment of 20% (in most cases) or an equity/minimum downpayment of 35% (in the case of a Stand-Alone HELOC used as a mortgage substitute).

Depending on who is offering a HELOC and how it was set up, a Home equity line of credit can have a different interest rate. The interest rates can also be further negotiated on the basis of credit score, net worth, stability of the income, value of the home, etc.

In addition, people might also have to pay some additional fees, such as home appraisal fees, title search fees, credit insurance fees, administration fees, or any other applicable fee. People should ask lenders to disclose all the additional fees before taking HELOC so that they don’t face any issues later.

Which Bank Have Them Best?

Many banks in Canada offer HELOC at different rates. These banks can include TD Bank, Tangerine, National Bank, etc. The rates are often based on the current prime rate. For example, a bank can use the interest rate – Prime rate + 1%.

Tangerine has the current HELOC Rate of 7.70%. It means that they have an interest rate – Prime Rate + 0.50%. The National Bank offers a HELOC Rate of 8.20%. It means that they have an interest rate – Prime Rate + 1%. People can enquire about the current interest rates on the Home Equity Line of Credit directly from the banks and financial institutions that offer it.

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