Home Equity Line of Credit

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gogysh
Posts: 8
Joined: Wed Jun 04, 2008 4:54 pm

Home Equity Line of Credit

Postby gogysh » Wed Jun 11, 2008 2:58 pm

Hi, Can somebody explain to me what exactly Home Equity Line of Credit (HELOC) is. I don't quite understand how it works?

spencer
Posts: 37
Joined: Thu May 29, 2008 8:46 pm

Re: Home Equity Line of Credit

Postby spencer » Wed Jun 11, 2008 7:34 pm

Home Equity Line of Credit is essentially a credit line, which uses your home as a collateral. For example you want to buy a house for $500,000 in Toronto, and you want to do it with HELOC. You go to Royal Bank of Canada (or whatever bank you are banking with) and apply for HELOC. The bank will do appraisal of the property and then will decide how much of its value they can lend you. Lets assume that the bank is willing to give you 80% of the assessed property value, which is $400,000 CAD. You'll have to come up with the $100,000 down payment, and then usually you can repay the HELOC (even in full) anytime you want without penalty.

A HELOC actually allows you to pay only interest on what you borrow. This makes HELOC very attractive during periods of low interest rates, because if you only pay interest your carrying costs will be lower than conventional mortgage. HELOC allow borrowers to buy a house they could never afford to buy with conventional mortgage, that's why they are risky and should be avoided.

rock
Posts: 20
Joined: Tue Jun 10, 2008 3:06 pm

Re: Home Equity Line of Credit

Postby rock » Wed Jul 23, 2008 7:06 pm

You should know that HELOCs contributed to the current severe housing market downturn in the USA. Do the math.


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