HELOC, home equity loans and remortgaging – what is best for you?
There are times in our lives where we require a chunk of cash for things like post-secondary school for the kids or a renovation or debt consolidation and your home can actually help as a lending resource. CREA has an awesome article on some of the tools available, so let’s go over the options you have as a homeowner to free up some of the equity you have built in your home.
A HELOC (home equity line of credit) gives you the flexibility to have a large sum of money ready when you need it. CREA describes it as a type of revolving credit, meaning you can borrow money, pay it back and borrow the funds you need. A BNN Bloomberg survey showed that 27% of respondents have a HELOC and 78% of those had used it.
A HELOC allows you to access up to 65% of your home’s market value, provides a lower variable interest rate than credit cards and other personal loans, but is typically higher than variable mortgage rates. You also have the option to make interest-only payments.
Another option is a home equity loan which is a one-time lump sump payment of up to 80% of your home’s value. You’ll be required to repay the loan over a fixed, predetermined period, including the principal and interest. The interest rates tend to be lower compared to credit cards, unsecured personal loans or lines of credit. The advantage, according to the blog, is payments are set at a fixed interest rate so if you prefer predictable monthly payments, it will allow you to use your home equity at a more consistent repayment rate.
The last one on the list is remortgaging, also known as refinancing where you replace your existing mortgage with a new one with different terms. This option can allow you take advantage of lower interest rates but make sure to go over your current mortgage terms to avoid high prepayment penalties. Remortgaging allows you to access up to 80% of the appraised value of your home, excluding the balance of your current mortgage.
No matter what route you decide to use, first determine what your financial needs and goals are and how different products can align with those objectives. Make sure to speak with a mortgage professional as well to get the full scope of what is available to you in today’s market. Check out the full CREA article here and visit me on Facebook and Google for more tips and tricks on all things real estate!