Let’s talk about one of my favourite tools for homeowners who have built up some equity and want options. A HELOC, or home equity line of credit, gives you access to the value you already have in your home, without selling and without locking yourself into a big new loan.
Here is the simplest way I explain it. A HELOC is revolving credit. It works like your credit card. You have access to a certain amount, and you can pay it back at any time. The difference is that a HELOC is secured by your home, so the interest rate is usually much lower than a credit card or an unsecured line.
How a HELOC actually works
Once your HELOC is set up, the money sits there ready for you. You only pay interest on what you actually use. Borrow some for a renovation, pay it back over a few months, and that room opens right back up. A lot of my clients like having one in place before they even have a specific plan, just so the option is there when life happens.
Most lenders in Ontario will let you access up to 65 percent of your home’s value through a HELOC, and up to 80 percent when you combine it with your mortgage. The exact number depends on your home, your income, and the lender, and that is the part I sort out for you.
What people use a HELOC for
Here are a few real examples from my world. A kitchen that finally gets done. A down payment on a cottage or a rental property. High-interest credit card balances pulled onto something far cheaper. A cushion for a season of self-employed income that comes in waves. I pulled equity out of my own home to buy our cottage after years of assuming a second property was out of reach, so this one is close to my heart. Woohoo for that.
HELOC, refinance, or home equity loan
A HELOC is flexible and open. A cash-out refinance rolls your equity into a new mortgage with one set payment. A home equity loan hands you a lump sum. Any of the three can be the right call, and the best fit comes down to your goals and how you like to manage money. We can look at all of them together and pick the one that keeps the most money in your pocket. Fair?
One thing I believe in: diversify, and try not to leave all of your equity locked in the house. When some of it is working for you, your home and your money can both pull their weight. We always look at this case by case, with your own situation front and centre.
Let’s figure out what your equity makes possible
If you are wondering how much equity you can borrow, or whether a HELOC even fits your plan, reach out. Tell me what you want to work towards and we will map it out in plain language. No pressure, and no question is too basic. You’re my client forever, and I am here long after the paperwork is done.
Related reading
Ready when you are. Start your application here, and the coffee is on me when you do.
This information is for general education and is not financial advice. Any figures, including the 65 percent and 80 percent borrowing limits mentioned above, are illustrative only and subject to lender approval (O.A.C.).
