They are considering securing a home equity line of credit (HELOC) worth $800,000. Ultimately they decide against the HELOC. Alternatively, they will have the option of a regular loan if they require a large amount of cash in retirement. A few years later, they decided they want to purchase a cottage in a peaceful lake 45 minutes from their principal residence.
Unfortunately, they do not qualify for the amount they require to purchase the cottage as their retirement income doesn’t meet the bank’s requirements. The Martins would have been able to utilize their home equity line of credit to complete the purchase cottage on the lake.
A home equity line of credit is a versatile financial tool that provides access to funds when it counts.
How does a home equity line of credit work?
A home equity line of credit is a form of secured debt, the debt is secured to your home. As we learned with the Martins, HELOCs are approved base on income, securing the HELOC prior to retirement could save the homeowner a headache down the road.
The beauty of a HELCO is that you are not required to use the loan, in fact, you may never access the funds. You will only be charged interest on the money you borrow and being able to borrow those funds quickly and without hassle provides huge peace of mind to homeowners.
A home equity line of credit is also flexible with respect to the payments. It is up to the borrow whether they would like to make payments that cover the principal and interest or just the interest.
When should you get a home equity line of credit?
The majority of banks do not seek out and offer homeowners a home equity line of credit. You will need to consult a mortgage professional to discuss the details of your situation.
You will need to have equity in your home that you are able to borrow, ideally, you will also be earning a stable income.
A home equity line of credit is another tool that Canadians use to ensure their financial success and peace of mind, we encourage homeowners to organize a HELOC sooner rather than later.