What is home equity?
Home equity is the difference between your home’s current market value and the amount you still owe on your mortgage. It grows as you make your regular payments, and as your home’s value rises with the market or with improvements you make.
What is a HELOC?
A HELOC is a revolving line of credit secured by your home. You can borrow, repay and borrow again, up to a set limit, and you only pay interest on what you use. Because it’s secured, you can usually borrow more, at a lower rate, than with a personal loan or credit card.
Why Penticton homeowners use a HELOC
- Debt consolidation: Replace high-interest loans and credit cards with one lower-interest balance.
- Home improvements: Fund a kitchen, flooring or other upgrades that can also add value to your home.
- Lower interest: HELOC rates are usually well below credit card and personal loan rates.
How HELOC rates work
HELOCs have a variable rate, usually set at the lender’s prime rate plus a margin. When prime changes, your rate and minimum payment change with it, so it’s worth keeping an eye on rate trends.
How much can you borrow?
In Canada, your mortgage and HELOC combined can’t exceed 80% of your home’s value, and the HELOC portion on its own can’t exceed 65%. To estimate your maximum:
- Take your home’s current market value.
- Multiply it by 80%.
- Subtract your existing mortgage balance.
The result is roughly what you could access, keeping the 65% limit on the HELOC portion in mind.
Is a HELOC right for you?
A HELOC is flexible and usually low-cost, which makes it a strong tool for renovations, debt consolidation or large expenses. But because your home is used as collateral, you could risk losing it if you fail to make payments, so make sure you can repay what you borrow. I’ll help you set the right limit and compare it with a refinance.
Home equity line of credit: common questions
Do I pay interest on the full HELOC limit?
No. You only pay interest on the amount you’ve actually borrowed.
Can I add a HELOC to my existing mortgage?
Often, yes, either with your current lender or by moving your mortgage to a lender that offers a combined mortgage and HELOC.
What’s the difference between a HELOC and a refinance?
A refinance gives you a lump sum inside a new mortgage. A HELOC is a line of credit you draw on as needed. I can compare both for your situation.
Written by Alex Thomson, independent mortgage professional
