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Hi folks! Today, let’s discuss the differences as well as the pros and cons of having a Mortgage versus having a Home Equity Line of Credit (HELOC) in Canada.
The federal government’s website states this about the definition of a mortgage:
The loan you get from a lender to help pay for your home is a mortgage. A mortgage is a legal contract between you and your lender. It specifies the conditions of your loan and secures it on a property, like a house or a condo. With a secured loan, the lender has a legal right to take your property
THE DIFFERENCES
The main difference is that a HELOC has revolving credit terms meaning as you pay down the balance, the remaining limit becomes available to you. A few financial institutions have had these products attached to the customers daily bank account so that any money sitting in the bank account until grocery day, for example, would reduce the mortgage balance temporarily thus reducing the amount of interest accumulating on a daily basis. This setup ALWAYS reduces the total mortgage interest paid while also giving access to capital but requires discipline. This could be a loaded weapon in the hands of, say, a gambling addict. A HELOC can be given, upon approved credit, for up to maximum 65% the value of the residence or up to 80% if combined with a conventional mortgage. In certain cases, HELOC interest may be tax deductible.
THINGS TO WATCH FOR
If your property may decrease in value at all, be aware of the ratios and pay down your HELOC accordingly and frequently review your terms and conditions.
A “Callable” or “Demand” loan is a term that may be in your HELOC meaning your lender can demand payment on full of your loan at any time even without default of any type. You’ll want to watch for this before you ever agree to borrow. Ask for an amendment on the agreement before you sign or request a different product that does not include this condition.
A HELOC has a slightly higher interest rate compared to a conventional bank or credit union mortgage.
The re-advanceable nature of a revolving line of credit requires self discipline.
THE BENEFITS
There are no pre-payment penalties when you pay off or pay extra to your HELOC.
On a HELOC there are no renewals which means no rate or term renegotiating (unless you default).
A HELOC can be used as low interest consolidation tool or growth capital if used cautiously.
IN SUMMARY
In summary, a HELOC is a valuable tool for those with 35% or more equity in their property wanting flexibility. Ask your bank, credit union or a licensed mortgage professional if this is right for you.
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DGB

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