Looking for a little extra cash for a renovation, to pay down debt, or invest in a business?
A home equity line of credit, or HELOC, may be the answer. Allison Cosgrove, the Blue Jean Mortgage Queen providing solutions and results for homebuyers in Mississauga, the GTA, and Golden Horseshoe areas, explains the ins and outs of HELOCs.
“A HELOC a type of loan that allows homeowners to borrow money against the equity in their homes. It's essentially a type of second mortgage where your home serves as collateral,” she explains.
“There are several ways to benefit from a HELOC. The people we see leveraging HELOCs the most are:
Homeowners with substantial equity: If you've been paying on your mortgage for a while or your home's value has increased significantly, you could have a lot of equity to draw from.
Those with high-cost debts: If you have high-interest debts such as credit card debt, you can use a HELOC to consolidate those debts at a lower interest rate.
Homeowners planning significant home improvements: A HELOC can provide the funds you need to make major renovations or repairs, which can also increase your home’s value.”
Allison goes on to point out the pros and cons of HELOCs:
Pros of a HELOC
- Flexibility: Unlike a fixed loan, a HELOC lets you borrow up to a certain limit as you need it, pay it back and then borrow again.
- Lower interest rates: Compared to credit cards and other types of loans, a HELOC usually has a lower interest rate.
- Tax benefits: The interest you pay on a HELOC is often tax-deductible if the money is used to buy, build or substantially improve the taxpayer's home that secures the loan.
Cons of a HELOC
- Risk of foreclosure: If you can't repay the loan, the lender could foreclose on your home.
- Variable interest rates: Most HELOCs have variable interest rates, so your payments could increase.
- Costs and fees: There may be costs associated with setting up a HELOC, such as appraisal fees, origination fees, and annual fees.
“A mortgage broker will help you navigate the complex process of securing a HELOC. We will explain the terms and conditions of the loan, help you understand the costs involved, and guide you in comparing different offers from various lenders. This can help ensure that you get a HELOC that suits your needs and circumstances at the best possible rate,” says Allison.
“Keep in mind that while a HELOC can be a useful financial tool, it's important to use it wisely and consider the risks involved. Always consult with a financial advisor or mortgage broker before making a decision. Contact me; I’m happy to help with this and other mortgage advice.”
This article was sponsored by Allison Cosgrove Mortgage Broker Mortgage Architects, a 2023 BurlingtonToday Reader Favourite.
