Look out for those easy home equity line of credit (HELOC) terms.
Your lender can cancel your HELOC at any time. They probably won’t, but they just might if you:
- consistently fail to make payments on time, or
- are caught by interest rate hikes and can’t afford the gap between what you used to pay and now owe.
Troubled waters ahead for you? Your lender could reduce the credit limit on your HELOC, or convert it to a mortgage, stretching the payments out over 25 years. Now that would seriously increase your long-term debt.
How Does a HELOC Work?
Your HELOC draws on the equity in your home to lend you money for anything you want. You can use it for travel, furniture, or home repairs. Like a credit card, your HELOC is a revolving line of credit.
Getting Money From Your HELOC
Getting money from your HELOC may be as simple as making withdrawals from a bank or an ATM, or giving retailers an access card or cheque. Your lender will give you a card or cheques to use. How to use a HELOC.
Be selective how you make withdrawals and purchases. HELOC interest is calculated daily and adds up quickly. In comparison, lenders charge credit card interest monthly, based on your card’s interest rate, called the annual percentage rate (APR). What can you use a HELOC for?
Making Payments on Your HELOC
Depending on your terms, your HELOC may have a draw period during which you can borrow freely against it. Look for the terms in the contract you sign. You can borrow from your HELOC as often as you want and make payments on the principal, or make interest-only payments.
While you could pay off your HELOC before a draw period ends, doing so could incur a penalty. Ask your lender if that’s the case. Otherwise, your lender will arrange repayment terms for the full principal, with interest.
Or your HELOC may allow you to borrow against your home as much as you want, up to 65% of your home’s value. As your equity in your home increases over time, your limit may go up. See the six types of HELOC available to you.
Is getting a mortgage right for you? Risks of getting a mortgage.
Get a HELOC with a private mortgage.
Upsides of Having a HELOC
Having a HELOC can give you immediate cash for financial investments and business or personal expenses. You can use it to renovate your home, or pay for big ticket items like new appliances or roof repairs. Without a HELOC, you may have to go into your savings, or ask for a personal loan for unexpected or major expenses.
HELOC interest rates in Ontario are also way lower than for credit cards. For example, making purchases with your HELOC might cost you 5.95% in interest, compared to 20.99% for a credit card.
Downside Risks of a HELOC
No rewards without risks, as the saying goes. A HELOC is no different. Interest rates are often variable, based on a lender’s prime rate. plus a percentage. That percentage depends on your general credit standing.
Any change to prime lending rates affects your HELOC rate. When interest rates are high, you’ll have to pay more to borrow the same amount, especially if you are making interest-only payments.
Since your HELOC is tied to your mortgage, you may be charged fees to set it up. They include title search, home appraisal, credit insurance, and legal fees. Your HELOC must be paid in full if you sell your home. Discharging a mortgage in Ontario.
Unfortunately, the ease of using your HELOC could leave you owing a lot more than you can easily pay back. A drop in your home’s value may leave you in the lurch if you go to sell. Read when your bank takes your HELOC away.
If Your HELOC Costs Too Much
When interest rates go up or a lender makes a demand request to repay a HELOC, take proactive steps to refinance your credit line.
- Refinance your mortgage.
Roll your HELOC into your mortgage by refinancing the entire amount. Your lender will require a mortgage stress test, home appraisal, and proof of stable income. Expect to pay appraisal, administration, and legal or other fees. Be aware the amount you can borrow through a first mortgage is limited by your home’s fair market value.
- Open another HELOC.
If your draw period is up, your lender may allow you to start a new HELOC. Eventually, you will have to pay the HELOC off, and you’ll pay more interest than for other options. But for now you can put off that expense by continuing to make interest-only payments.
- Get a personal loan.
Instead of extending HELOC repayments over the life of your mortgage, you could get a fixed-term personal loan. Advantage: monthly payments are fixed, meaning they won’t go up as interest rates do. You won’t benefit if rates drop, but your loan will be paid in full.
Why You Need a Real Estate Lawyer
Find a licensed Ontario real estate lawyer to sign legal documents your mortgage lender requests if you buy a home or get a HELOC. Axess Law has a mortgage lawyer near you who can liaise with your lender to get and return paperwork you need to sign to finalize your mortgage. We protect your home from fraudsters by adding title insurance to your mortgage.
Let our professional legal team negotiate with the seller’s lawyer when you make an offer to purchase a home or land in Ontario. We go over your real estate agent’s agreement of purchase and sale with you, and explain terms and conditions that may be unfamiliar. Amendments to agreement of purchase and sale and how to make them.
If major structural issues come to light following a professional home inspection, your Axess Law real estate lawyer talks to the seller’s lawyer about who will make repairs. We can advise you on whether you can cancel your buyer’s offer and who keeps the deposit if the deal falls through.
When you’re ready to close, your Axess Law lawyer searches title to the property for outstanding financial claims or construction liens that can prevent the title from being transferred to you. Adding names to a house title in Ontario is economical if you want your spouse to be a joint tenant, or we can do it later, at your convenience.
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Close real estate transactions anywhere in Ontario with our remote real estate lawyers. Our legal professionals network with you online using any compatible home computer, laptop, tablet, or mobile device. We offer secure, confidential video conferencing services anytime you want to sign, have witnessed, or finalize an Ontario agreement of purchase and sale. We show you how to make completing your real estate deal nearly effortless.
How virtual real estate lawyer services work.
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Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
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Make Online or Virtual Legal Appointments
Make an appointment to meet Axess Law’s real estate lawyers in person, or dial our 647-479-0118 lawyer line (toll free to 1-877-402-4207) for a free quote. Axess Law has conveniently located offices in Greater Toronto Area and Ottawa. Booking appointments is easy when you use our online booking form.
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