If you’re a homeowner in British Columbia, your mortgage can be quite pricey as real estate in the province becomes more and more valuable. However, as you pay down your mortgage over the years and your own property potentially gains more value, you’ll also be building equity. Your home equity can then be used in various ways, including:
- Refinancing your mortgage
- Applying for a home equity loan
- Applying for a HELOC (home equity line of credit)
For more information about accessing your home equity in 2018, click here.
What is a HELOC?
A home equity line of credit is a form of “second mortgage”. This means that you can actually hold a primary mortgage with one lender (bank, credit union, etc.) while taking out a HELOC through an alternate source. So, while it’s not a literal second mortgage, a HELOC will fall under a secondary claim position with this other lender, since there is another mortgage on the property at the time of application. Some HELOCs come with higher interest rates than other credit products, especially if you’re getting yours through a secondary source and it’s assumed that the credit line is in the second position, making it riskier for the lender. Certain HELOCs, however, do qualify in the primary position if your first mortgage is already paid in full.
Once you’ve managed to tap into your home equity, you can use your HELOC as a revolving credit line, which you can dip into as you need, then pay back via a monthly balance, along with the option of a minimum payment, similar to a credit card.
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What’s the Difference Between a Home Equity Loan and a HELOC?
If you’re trying to make the best use of your British Columbia home equity, it can become confusing when you end up faced with so many options. However, home equity loans and HELOCs are two of the most common methods. These products are similar in some ways. For instance, both products:
- Are often referred to as “second mortgages”
- Involve borrowing using your home equity
- Offer the opportunity for lower interest rates than some traditional loans
- Can be used to finance almost any cost, including:
However, these two products differ in certain respects, such as:
Home Equity Loans:
- Are specific lump sums of loan cash, the amounts of which will vary in accordance with how much equity you’ve built
- Generally come with a fixed interest rate
- Must be repaid within a certain timeframe through equally divided installments (monthly, bi-monthly, weekly, bi-weekly, etc.)
- Come in the form of revolving credit.
- Are similar to traditional lines of credit, only they are secured against your home. Be careful! This means that if you stop making payments, your home may be seized as collateral.
- Allow you to pay a slightly higher but often adjustable interest rate, only on the amount you withdraw, not on the total loan balance (as it would be with a home equity loan).
- Sometimes come with the option of a fixed interest rate (ask your lender).
Scenarios When a HELOC is the Better Choice
While it’s true that home equity loans and HELOCs in British Columbia can be quite similar, there are situations where one might product outweigh the other. For instance:
Home Equity Loans might be more beneficial when:
- You’re dealing with a sudden emergency expense that you need to finance immediately but can’t afford to pay back all at once.
- You’re trying to consolidate a large amount of debt.
- You want to know exactly how much you’ll pay in installments and interest over the course of your payment schedule.
- You are comfortable using your home to secure your loan and interest rate.
HELOCs might be more beneficial when:
- You would rather finance something over time, rather than all at once.
- You’re trying to finance ongoing renovations, additions, or general maintenance to your home, which might be easier if you can tap into a line of credit as needed.
- You prefer the option of paying a variable interest rate on the amount you’ve withdrawn, which can be cheaper if interest rates decrease while you’re in the process of mortgaging.
- When you’re not trying to finance unnecessary purchases, like consumer goods.
Shopping for low-interest rates? Consider this first.
Looking for HELOC in British Columbia?
Wondering what’s the best use of your British Columbia home equity? That’s easy! It’s by getting a HELOC through loans Canada, then using your line of credit for whatever expenses you see fit. Apply with us today for a better financial life tomorrow!