Compare and Save With Loans Canada
Written by Lisa Rennie
Best HELOC Ottawa (Online) January 2021
There are all sorts of different loan products out there in Ottawa, each of which is designed to help consumers out of a financial predicament and cover an expensive cost. If your bank account is not equipped to cover a pressing expense, there may be a loan product in Ottawa to help you out.
One interesting loan product offered to consumers in Ottawa is the HELOC. If you own a home and have some equity built up in it, then you may be eligible for a HELOC.
So, what exactly is a HELOC and is it a loan that you should consider? Keep reading to find out all about HELOCs.
For more information about traditional loans in Ottawa, look at this.
What is a HELOC?
HELOC stands for a ‘home equity line of credit’ and is a type of loan that allows borrowers to borrow money against the equity in their homes. Home equity is the amount still owed on your mortgage subtracted from the value of your home. The difference is the equity, which you build as you pay down your mortgage or if the real market value of your home goes up.
Lenders in Ottawa typically require that borrowers have at least 20% equity in their homes in order to qualify for a HELOC.
Click here if you’d like to learn how to build home equity.
How Do HELOCs Work?
Traditional loans in Ottawa typically involve a lump sum of money given to borrowers who qualify for the loan and are approved by their respective lenders. But HELOCs work a little differently.
The easiest way to explain the way a HELOC works is to compare it to a credit card. With a HELOC, borrowers in Ottawa are approved for a certain amount of money and have the flexibility to use as much or as little of this limit as they like. Rather than taking out a lump sum of money, borrowers simply have access to a specific amount.
Much like a credit card comes with a credit limit and cardholders are allowed to spend any amount up to their credit limit, borrowers can do the same with a HELOC. Interest is only charged on the amount of money that has been withdrawn.
Read this to see how you can get the best rate for your line of credit.
Once that money is repaid, the borrower no longer pays interest until more money is withdrawn again. The money can then be withdrawn again and again, as long as the funds are eventually repaid.
Want to know how much it costs to buy a house in a major Canadian city. Check out this infographic.
What’s the Difference Between HELOCs and Home Equity Loans?
Both HELOCs and home equity loans involve tapping into the equity in a property to access funds. But that’s pretty much where their similarities end.
The fundamental difference between a HELOC and a home equity loan is the way in which the funds are accessed. Rather than taking out a lump sum of money – which would be the case with a home equity loan – borrowers in Ottawa who take out HELOCs would simply have access to a loan limit that they can borrow against when the funds are needed.
The two loan options also differ in how the money is repaid. Home equity loans are paid back in regular installment payments, much like most other types of loans. But HELOCs are repaid at the borrower’s discretion, although there is a minimum payment that must be made, similar to a credit card.
Borrowers in Ottawa can take out as little or as much as they like, and as frequently or infrequently as they want, as long as the funds borrowed do not exceed the loan limit and the total borrowed funds are paid back before the expiry date.
Be careful not to fall into the minimum payment trap!
How Can HELOCs Be Used?
Much like other types of loans, the funds obtained through a HELOC in Ottawa can be used for any number of things. Here are just a few of the more common reasons why homeowners tap into the equity in their homes in the form of a HELOC:
- To cover the cost of home renovations
- To pay for car repairs
- To take advantage of an investment opportunity
- To pay for college or university tuition
- To start or grow a business
- To take a once-in-a-lifetime family vacation
- To consolidate debt
Are You a Good Candidate or a HELOC in Ottawa?
In order to take advantage of a HELOC in Ottawa, you’ll need to meet certain criteria first.
For starters, you’ll obviously need to own a home. Anyone who does not own a home would not be able to apply for a HELOC. Secondly, you must have a minimum of 20% equity in the home, as mentioned earlier.
Need to negotiate the best mortgage contract in 2019? Read this first.
If you meet the above criteria, you’ll still want to assess whether a HELOC is the right loan option for you based on your particular situation in Ottawa. Consider why you need the money and what you’ll be putting it toward. A HELOC is a loan, after all, which means you are still responsible for paying it back, regardless of whether it’s coming out of your home’s equity. Given this, you’ll want to make sure that the funds are being put to good use.
Further, it’s important to budget accordingly and ensure that you will be financially comfortable enough adding another loan payment on top of any other debt you might have.
While there are plenty of ways to use the funds from a HELOC, perhaps one of the best ways is to make an improvement on your home. By doing so, you can effectively increase the value of your property and thereby boost the amount of equity you have.
On the other hand, spending the money on non-essential things that lose value right away might not be a wise investment, unless you’re spending the money for emergency purposes.
Thinking of Applying For a HELOC in Ottawa?
If you’ve determined that the money borrowed will be spent wisely and you can comfortably pay the money back, then perhaps a HELOC may be right for you. To find the best loan product and lender in Ottawa who offers HELOCs, get in touch with Loans Canada today!