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Homeowners are in unique positions to be eligible for certain types of loan products that are not available to consumers who do not own a home. In cases where extra funds are needed to cover a large purchase or expense, there are various loan products out there to help cover the bills.
In particular, home equity lines of credit (HELOCs) are unique types of loans that allow homeowners to tap in their home equity to get their hands on the funds required.
If you’re currently a homeowner in Montreal and have a certain amount of equity in your home, you may be eligible for a HELOC. Let’s go over what a HELOC in Montreal is and whether or not it’s the right type of loan product for you.
What is a HELOC?
A HELOC – which is short for a “home equity line of credit” – is a type of revolving credit that allows homeowners to borrow against the equity in their homes. They’re also referred to as “second mortgages” because they take second priority over first mortgages.
Click here to learn how you can build home equity in Canada.
A HELOC in Montreal works very similarly to traditional credit cards. Once you’re deemed to be eligible for a HELOC by your lender, you’ll be allowed to withdraw up to a specific credit limit. You’ll be free to withdraw as much or as little against your equity as you like within the credit limit allowed.
Once you repay the amount you withdraw, you can borrow against the equity, again and again. Instead of being charged interest on the entire credit limit, you’ll only be charged interest on the money you withdraw. Once those funds have been paid back – along with the associated interest – you won’t be subject to any more interest charges until you borrow once again.
In order to qualify for a HELOC, you’ll need to own at least 80% of your home, including the loan amount you take out from your equity. If you end up with less than 20% equity, you may not be eligible.
Here’s how you can get the best rate for your line of credit.
Common Uses For HELOCs in Montreal
People take out loans for a variety of reasons, and HELOCs are no exception. Here are just a few uses for HELOCs in Montreal:
Home improvement – Home projects are usually very expensive endeavors that many homeowners don’t have the liquid cash to cover. A HELOC can prove to be very useful to cover this expensive cost while simultaneously boosting the value of your home.
Consolidate debt – If you have a lot of high-interest debt, you might be able to take out a HELOC at a much lower rate to eliminate all of that other debt. This will not only help you save a lot of money in interest, but it will also make managing your debt more feasible.
Make a large purchase – Whether you need to fix your car, pay for your child’s college tuition, or simply want to take a big family vacation, a HELOC can make that happen.
What’s the Difference Between a HELOC and a Home Equity Loan?
You may have heard of a home equity loan in addition to a HELOC. But what’s the difference?
Both HELOCs and home equity loans allow homeowners to borrow against the equity in their homes. But while HELOCs work like revolving credit similar to a credit card, a home equity loan works more like a traditional loan.
With a home equity loan – also often referred to as a second mortgage – lenders provide borrowers with a lump sum of money that’s taken against the home’s equity. To repay the loan amount, borrowers pay installments until the full loan amount is repaid by the end of the specified term.
The right financial product for you will depend on several things, including what you need the money for and how often you believe you’ll need to access funds. For one-time financial needs, a home equity loan may work. But if you believe you’ll need to access funds a handful of times in the near future, then perhaps a HELOC in Montreal may work best.
Interested in either of these home equity products? If so, check this out.
When Should a Second Mortgage Be Considered?
While a second mortgage can be a convenient way to obtain the money you need, it should only be used after careful consideration of exactly what the money will be used for. Ideally, a second mortgage should be taken out to be put toward something that will help boost the value of your home. Rather than spending your borrowed funds on something that will immediately lose value, the funds can be used to increase the value of your home.
For instance, putting the money toward a home improvement that has proven to bring in a high ROI is ideal. A kitchen remodel, new flooring, or bathroom addition, for example, may all be good home improvement projects that will prove to be money well sent. Blowing the money on a lavish vacation, on the other hand, won’t bring you any added value.
Interested in Tapping Into Your Home Equity?
If a HELOC in Montreal or second mortgage sounds like something that would serve you well financially, let Loans Canada help you find the right lender and product for you that will offer you the terms and conditions that best suit your financial situation. Call Loans Canada today.