Page 21 - Real Estate Now Sept-Oct 2022

“One reason is renovations. I’m going to renovate my basement, it’s $100,000, I pulled the money out of my HELOC
and I’m ready to go,” he said. “Another reason is to buy another property. I’m buying a new condo and I need to put
$50,000 down when I sign the paperwork or [put down] the deposit.”

A HELOC allows you to access up to 65% of your home’s market value,
providing a larger loan amount you wouldn’t likely secure through
a credit card or other line of credit. However, your outstanding
mortgage loan balance, combined with your HELOC, cannot equal
more than 80% of your home’s value.
A HELOC tends to provide a lower variable interest rate compared
to credit cards and other personal loans, but is higher than variable
mortgage rates. A HELOC also allows borrowers to make interest-
only payments, which 8% of HELOC holders tend to do, according
to the BNN Bloomberg and RATESDOTCA survey.

“A HELOC is going to be [at] a lower interest rate, and generally you’ll qualify for a much larger amount. It’s unlikely
you’re going to get a $100,000 credit card. It’s unlikely you’re going to get a $100,000 unsecured line of credit,” said
Weintraub. “But, again, if you’re doing a reno or you want to invest or [do] big things, that’s where you could use a
HELOC. So, its two main advantages are lower rates and a larger amount [of money.]”

It’s important to note as interest rates rise, the cost of borrowing also increases, which can affect HELOCs. As home
equity lines of credit are based on variable-rate interest, borrowers might be on the hook for higher payments as rates
fluctuate in today’s market.

What is a home equity loan?
Although they sound similar to a HELOC, home equity loans are slightly different.
According to the Financial Consumer Agency of Canada, a home equity loan is a one-time lump sum payment. An
equity loan starts from $10,000 and can go up to 80% of your home’s value. A home equity loan borrower will pay
interest on the entire amount.
Unlike a HELOC, an equity loan isn’t a form of revolving credit, meaning you’ll be required to repay the loan over a
fixed, predetermined period, including the principal and interest. However, home equity loan interest rates still tend
to be lower compared to credit cards, unsecured personal loans, or lines of credit.
The advantage of a home equity loan is payments are set at a fixed interest rate. If you’re someone who prefers
more predictable monthly payments, a home equity loan still allows you to use your home’s equity, but at a more
consistent pace.
How does remortgaging work?
If neither a HELOC nor a home equity loan sounds appealing, a homeowner can still extract value from their property’s
equity by remortgaging.
Remortgaging, otherwise known as refinancing, involves replacing your existing mortgage with a new one with
different terms.

A homeowner may decide to remortgage to take advantage of lower interest rates. Breaking your mortgage before
your term ends can open up steep prepayment penalties, which can vary based on several factors, such as the type
of interest rate you have. It’s important to understand the size of your pre-payment penalty before you remortgage
so you can justify the savings if you switch to a new mortgage.
Remortgaging allows you to access equity in your home when you renegotiate your mortgage terms. A homeowner
can tap into 80% of their home’s appraised value as a lump sum, excluding the balance of their current mortgage.

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