Why do you want a HELOC? It is not some funny new pet. It is the acronym for Home Equity Line of Credit. There is a difference been this and a mortgage although both are loans. The difference is one is a lump amount that you receive and the other is establishing an amount that you can draw from.
The interest rate is prime plus. This choice could sound very appealing to some. Your rate for your mortgage is higher so it may be attractive to you to borrow on this credit to pay off your mortgage so that your interest payment would be drastically reduced.
However, This can be a very dangerous situation if you are not going to pay off the loan for a substantial amount of years. The rate may now be low compared to your mortgage rate but the prime can and has lived very volatile periods.
When you decide you want this type of credit be sure to ask some of the right questions. Most of them have to do with interest rate. Prime is variable but the prime rate varies each day. However, the prime plus rate of interest on this type of loan is not divulged very easily. One must ask. If you do not you may be in a situation that this credit is costing you a great deal of money.
Needless to say the borrowing institution would like you to request a high amount for your line of credit. They want as much interest as they can. It is possible that they will establish a minimum so be sure to inquire. Paying interest on money that you are not using or need is not a good situation.
Typically there are fees. With this credit you have particular fees you must budget for in advance. There is usually an annual fee that they may waive for your first year. Should you cancel before a certain amount of years you pay a cancellation fee. In asking many questions you may be able to establish what it will truly cost you. It is important for you to know at the beginning that there may exist a special rate of interest, must you have an average balance, is there a margin, are you expected to take out a minimum, are there fees upfront for lender or third party, and what are the fees annually as well as the cancellation fee.
When considering this choice you should remember that this loan is given to you using your home as equity. It is possible that with a turbulent economy the approved amount will not be honored by the lender because your property value has decreased. Never forget this is a secured loan, which puts your property at risk.
Many Canadian Banks offer HELOC – Home Equity Line, which can help you get a mortgage.
