Homeowners may be reevaluating their finances in light of rising interest rates, making borrowing money significantly more expensive. After years of hovering near 0%, the Bank of Canada has increased the interest rate from 0.25% in March 2022 to 4.5%.
Depending on the type of mortgage you’ve arranged, your monthly bills may be substantially higher than you had budgeted for. If this is you, perhaps consider taking a home equity line of credit or HELOC.
Here’s a brief explainer of how they work.
What is a HELOC?
A home equity line of credit is a revolving line of credit borrowers access by putting their home up for collateral. HELOCs let you access the equity you’ve built over the years right when you could use an injection of cash.
The borrower can tap into the money as they please and repay the interest fees as they go. They don’t receive a lump sum payment in their account.
What Are the Benefits of a HELOC?
HELOCs from industry-leading mortgage brokers like Burke Financial offer a few benefits. The approval process tends to be much faster because lenders are more comfortable lending when a property is a collateral.
This arrangement also secures the borrower much lower interest payments than they’d otherwise pay. There is a lot of wiggle room and space to negotiate terms, so the deal you get can be considerably customized to your financial needs and lifestyle.
HELOCs are perfect for times when you’re unsure how much money you’ll need. For example, it can be hard to know the final bill when renovating your home because you can’t control all the variables.
Speak to an experienced mortgage broker about whether a HELOC is right for you. They can work with you and find a solution, no matter your level of income, debt, or credit.
Are There Risks?
Anytime you’re using a major asset like your home as collateral, there are risks involved. Failure to repay the terms of the HELOC can result in the loss of your property. Advisers may remind you that you’re free to use the HELOC funds however you please.
However, some usages are more advantageous than others. If you take out a HELOC to use on luxury goods, you’ll pay the costs of the goods and the interest payments. Alternately, if you reinvest the HELOC funds in ways that boost the value of your home, you can offset the costs of things like home renovations or repairs or perhaps even net a profit.
Your money is yours to do as you please, but spending lavishly when the stakes are high can be risky. Weigh your best options after speaking to an impartial expert who understands your situation.
Everybody’s needs and preferences are different, and there isn’t one universal path to financial stability that works for everyone. Homeowners are fortunate to have a roof over their heads, but that doesn’t mean they’re without financial stress. The longer you’ve owned your home, the more likely a HELOC is to boost your budget and let you breathe a sigh of relief.
