Home Improving

HELOC stands for Home Equity Line of Credit, also commonly referred to as a secure line of credit. 

This credit facility operates in the same way as any existing unsecured line of credit you may have. The difference is by providing collateral of your home equity, the rate premium applied above prime drops from 2-5% down to 0.5%, giving you a lower cost of borrowing. 

At present, the Bank of Canada prime is 3.95% resulting in a 4.45% net cost of borrowing, charged at interest only. 

HELOC's can be obtained up to 80% of the value of your house, less any existing mortgages owing. For example, if your home is worth $500,000, the allowable equity at 80% max is $400,000. If you presently owe $300,000 on your mortgage, the available equity in your home that you can provide in seeking a secure line of credit is $100,000. 

It depends. Each credit product solves a need. The benefit of a HELOC is you are only charged and pay interest as you use or advance the funds. This flexibility comes at the cost of a higher rate, meaning you'll pay a premium above prime.

Conversely, with a mortgage, you pay a lower rate with a discount below prime. However, you'll be paying interest and principal on the entire amount immediately, even if only part of the funds are required in the short term.

The answer depends on the size, length, type and scope of the project you are undertaking. Our team members will outline and optimize the best credit strategy for your needs, to mitigate the interest you'll pay. 

Generally, the strategy or process we recommend is refinancing to have the funds available before commencing any project or large credit utilization. 

It's a common error to use (and max out) credit cards and unsecured lines of credit. This utilization is detrimental to your credit score and will likely reduce your ability to qualify for refinancing with the best lenders. 

Keep in mind and create a buffer of at least 20-40% 

Of available funds above your expected project budget. The only certainty in life, being uncertainty. Like a sweater on a cold day, it's better to be looking at it than looking for it. 

To help mitigate interest payable, we can utilize a secure line of credit through the duration of the project. At completion, with no further spending to be done, we can seek to convert the secured line into a mortgage segment at a lower rate.

We'll ensure that the lenders we review and evaluate, provide flexible credit products and solutions. Most allow for a structured combination of up to 5 unique mortgage segments that we can utilize for tax efficiency, credit diversification and simple organizational purposes (which we'll review with you). They also allow for up to 3 secured lines of credit.