It feels like the cost of everything is rising. The price of housing in Ontario may have dipped in certain regions since the February 2022 peak, but food costs and many other daily essentials are more expensive.
Homeowners are lucky to have a roof over their heads that they can call their own. They can also use it for financial support, as the equity you’ve built up over years of mortgage payments can be tapped into with things like a home equity line of credit or HELOC.
Let’s take a closer look at how it works.
What Exactly is a HELOC?
A home equity line of credit is a revolving line of credit that leverages your home equity as collateral. Essentially, the lender gives you optimal, flexible terms because there’s nothing more reassuring a lender can see as collateral than property.
Industry-leading mortgage brokers like Burke Financial work with homeowners of all levels of debt, credit, and income to arrange HELOCs that let them access the money they need when they need it. It’s a secured line of credit, meaning the borrower uses their home as collateral to guarantee they’ll make repayments.
You’re only required to make monthly payments, not payments on the interest and the principal, unlike a mortgage. There are different types of HELOCs, including ones that are standalone products and ones that can be bundled into a mortgage.
The financial brokerage you work with should work closely with you to understand your financial goals and lifestyle, then recommend the path that meets your needs. Don’t feel stressed out by the large numbers thrown around or the length of the repayment schedules — there’s always a healthy and productive way forward.
What Are HELOCs Used For?
Legally speaking, a HELOC can be used for any purpose whatsoever. Nothing is stopping you from using your HELOC any way you please. However, some approaches are more advisable than others because failure to make repayments comes with serious risks, including the potential loss of your home.
Using a HELOC to pay for a luxury vacation or new car means you’ll have to pay for these expensive things and the borrowing costs. On the flipside, using a HELOC to help pay for a home renovation or emergency repairs reinvests the money back into the borrowing asset.
Your home’s rising value can offset or even erase the borrowing costs. If your home’s increased worth exceeds the borrowing costs, you’ll net a profit. If you use a HELOC strategically, you can make money improving your living quarters. Using a HELOC to pay for a luxury vacation or new car means you’ll have to pay for these expensive things and the borrowing costs. On the flipside, using a HELOC to help pay for a home renovation or emergency repairs reinvests the money back into the borrowing asset.
People also often use HELOCs to access cash for other investment opportunities. Speak to an experienced financial brokerage accredited by the better business bureau to get the right advice for you.
The economy is changing rapidly, and there’s uncertainty in the air as prices of seemingly everything is on the rise. If you’re a homeowner who needs help accessing a significant amount of money, talk to a financial broker about the right path forward for you.