Short on Funds during the COVID-19 Pandemic?

1. Short on Funds during the COVID-19 Pandemic? This is How Home Equity Line of Credit Can Help You A lot of people are falling short on emergency funds during this unprecedented time. We understand your situation and millions of others. Therefore, we prepared a solution for your consideration. If you’re a home owner with equity in your house, you have one more option to handle your finance now. That is a Home Equity Line of Credit (HELOC). How Does HELOC Work? When you take out a HELOC, you are borrowing money with your property as collateral.

2. For HELOC, it gives you access to a pool of cash (commonly known as credit limit) that you can tap into anytime. In this sense, HELOC is similar to Line of Credit because it is a revolving loan, and you can borrow up to your credit limit. In other words, this loan can expand and contract to meet your needs. However, unlike a Line of Credit, a HELOC comes with a time limit. You can only draw out the money for a certain period, usually 5-10 years (commonly referred to as “draw period” ). During this period, the payment you will be making, are interest only. Once this “draw period” is over, you will enter a pay-back schedule, where you make repayments for both principle and interest, within 10-20 years. Reasons to Use a HELOC HELOC are commonly used for home renovation or repairs. Using HELOC this way makes sense, as home improvements add value to your home. If the money is wisely spent, you can come out ahead when your house become sold. Other reason to HELOC are Education expenses Buy a car Buy cottage or investment properties Consolidate debts, such as high interest Line of Credit Pay bills during a tight finance situation How Much Can I Borrow? The maximum amount on your HELOC depends on how much equity you have in your home. Equity = 65% to 85% Current Estimated Value of Your Home – Current Owning Balance on Your Mortgage. For example, for a house worth $400K with a mortgage of $140K, your HELOC credit limit is calculated: 85% *400K= 340K This is your Max Allowable Valuation of Property 340K – 140K= 200K This is your Max Credit Limi Some lenders will also consider other factors, such as income, credit rating, other debts to determine your max credit limit.

3. Interest Rates for HELOC Most HELOC have a float interest rate, meaning the actual interest you will be charged on, depends on the prime rate of Bank of Canada. For example, if the prime rate is 2.5%, and your lender charges Prime + 1%, then your interest rate is 3.5% With this adjustable interest rate, your payment amount might fluctuate. It is strongly recommend that you budget accordingly. Fees for Getting a HELOC Commons fees for getting a HELOC are: Application fee, which is not always refunded even if the application gets durned down. A property appraisal at your cost, to determine the value of the home Closing costs, such as title search and legal fees Other, if the specific lender charges any Benefits of HELOC 1.Flexibility. You can borrow any amount within your credit limit. Pay back whenever the funds are ready, within the repayment period (usually up to 20 years) 2.Low Interest. Interest is much lower than most credit cards or Line of Credits, because you put your property as collateral. Because of this, HELOC is a favourable tool to consolidate expensive debts with. 3.Right to Pay Early. You can also pay more than just the minimum payment 4.No Payment, When There Is No Balance. Did not borrow? No need to pay. 5.Tax Deduction. The interest you pay on the HELOC is tax deductible. Drawbacks of HELOC 1.Risk of Foreclosure. Because the loan has your property as collateral, so if a borrow fail to meet the debt obligation, they might face the risk of losing their home.

4. 2.Risk of Being Underwater. If a house crisis happens, then the property will drop dramatically. That means, the debt is ever more than your value of your home. Even selling off won’t help you pay off the debts. 3.Risk of Having HELOC Frozen. If the lender sees that the house value decrease dramatically and a borrower’s income dreading at the same time, they can freeze this HELOC. Imaging in the middle of a major renovation and funds get cut off? 4.Uncertain Interest Rates. Fluctuating interest rates means fluctuating payments. Make sure you know where to get these additional funds for payments 5.Restriction on Renting. Some HELOC will not allow you to rent out, while still owning money on it. 6.Big Final Payment. When the HELOC expires, the leftover balance has to be paid off in full. Alternatives to HELOC You have other options too if you need more cash to handle your current situation. Articles coming up soon. Thinking about HELOC? Get it funded with us. ??Kai Lu ?Mob: 647-869-1058 ? info@mortgagemojo.ca Affordability & Payment Comparison Calculators on: mortgagemojo.ca