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Is a HELOC Right For You?

If you are familiar with a personal line of credit, a HELOC (Home equity Line of Credit) works on the same principal. It is a mortgage granted to you in the form of a Line of Credit secured by the value of your property.

When applying for a HELOC, you must have at least 10% down payment. The interest rate is usually the same as bank prime rate and will fluctuate up and down the same way that the bank prime rate fluctuates.

You can take a five year term and some financial institutions now have a ten year term for this product.

You can opt to make interest only payments for the duration of your term, in which case the principal of your mortgage will not go down.

After your term is completed, you can renew for the same product or change to a fixed rate mortgage or a variable mortgage.

The pros of taking a HELOC are the following:

  • You can opt for interest only payments, which makes your monthly payment more affordable.
  • If you make Principal and Interest payments, you can withdraw the principal that you repay without applying for credit again, for example:

    You took out a HELOC for $100,000.00. Your monthly Principal and interest payment is $700.00 of which $30,00 goes down on your principal and the other $670.00 goes down on interest. (These amounts will vary each month, the principal will go up and the interest payments will go down).

    After 3 years you have repaid $1,080.00 on your principal. Now you can withdraw that $1,080.00 again without notice to the financial institution and you can use it for whatever you want.

    Most consumers find this very convenient.

  • You can make your mortgage interest payments tax deductible. (Note: Your interest payments are not automatically tax deductible with any mortgage product, but a HELOC gives you an avenue to turn your mortgage interest payments into a tax deductible expense. For more information on how to do this, please contact one of our specialists.

The Cons of a HELOC

  • It is not transferable, therefore if you want to sell the house and buy a bigger house, you have to pay out the mortgage, you cannot transfer the mortgage to the new house.
  • You have no control over the interest rate, if bank prime rate becomes high, your payments will increase.
  • If you opt for interest only payments, it can take you a lot longer to pay off your mortgage than if you were in a fixed rate mortgage term.
  • There is a payout penalty if you decide to terminate the loan before expiration date.

If you are not sure if the HELOC is the right product for you, go back to the mortgage products page, and learn more about some of the other mortgage products available.

If you have questions about the HELOC product, please feel free to contact one of our professionals.

You might not feel ready to take the big plunge and commit to a mortgage just yet, learn more about your options before making the decision.