If you’re in need of money you may be considering taking equity from your home. Our agents would be happy to speak with you about this and determine if this is the right course of action.
Withdrawing equity from your property can be done a few different ways. An overview of your current mortgage details, house value, employment, income, credit and current needs will provide our agents with the information necessary to determine the most suitable option.
Home equity loans come in two variations. Both options are obtainable with terms that range from five to ten years.
Fixed Rate Loan
Fixed Rate loans deliver a single lump-sum payment to the borrower, which is repaid over a set period of time at an agreed upon interest rate. The amount of the payment and interest rate remain the same over the duration of the loan.
It is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan. This is opposed to loans where the interest rate may adjust or “float.”
As a result, payment amounts and the duration of the loan are fixed. The person who is responsible for paying back the loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.
Home Equity Line of Credit
A home equity line of credit (HELOC) is a revolving line of credit. Because it is secured by your home it has a much lower interest rate than a traditional line of credit.
This type of loan works much like a credit card. Borrowers are pre-approved for a certain spending limit and can withdraw money as they please. Monthly payments will vary based on the amount of money borrowed.
Interest is calculated daily at a variable rate attached to Prime. HELOC rates are set at Prime plus a pre-defined number, however, your lender can change that number at anytime.
There is no term associated with a HELOC. The line of credit is made available to you until you sell you home or refinance your mortgage. However, if you you have a poor repayment history the lender can call the HELOC at anytime and demand payment in full.
The Office of the Superintendent of Financial Institutions (OSFI) has issued guidelines for federally regulated lenders that address the maximum amount for home equity lines of credits. OSFI expects federally regulated lenders to limit new HELOCs to 65% of your home's appraised value. A home equity line of credit can be combined with a regular mortgage for a maximum of 80% of your home's appraised value.