Did you purchase your present dwelling a number of years ago? After dutifully making regular mortgage payments and, perhaps, putting a little extra against the principal when you were able to, you’ve acquired a certain amount of equity in your home. This may qualify you for a Home Equity Line of Credit. Here’s what you need to know before you decide to apply.
 

Essentially, you’re requesting a line of credit from your lender and using your home’s equity to secure the loan. Your property is used as a guarantee that you’ll pay the funds back. The line of credit will have a maximum limit on how much you can borrow, based on 65% of the market value of your house or the purchase price. The product comes with a variable interest rate and you should expect to be charged interest only on the amount of money that you borrow.
 

There are several advantages to this type of loan. It provides easy access to money that you can use whenever you like. This can be a real advantage if you’re faced with an unexpected expense or an emergency. Its flexibility allows you to use funds for anything you want and pay them back when it makes sense for you. Plus, you only ever need to pay the monthly interest. The interest rate charged on a Home Equity Line of Credit will usually be lower than on other loans such as an unsecured personal line of credit or a vehicle loan. And, the interest is definitely lower than for credit cards.
 

Are you fairly disciplined in handling your finances? Having substantial funds readily available through a Home Equity Line of Credit with a requirement to only make interest payments can be very tempting. Once you’re approved, be strategic about what you’re going to use the money for and how you plan to repay it. If you’re not careful, you could easily get stuck simply paying the monthly interest while the equity in your home is reduced. Keep in mind that you’ll need to have a good credit rating and a source of income for your application to be considered.
‘Want to know more? Take a look at what the Government of Canada has to say about a Home Equity Line of Credit.