What Is A HELOC?

Often times we are asked the question “what is a HELOC”? A HELOC is an acronym for “home equity line of credit”. It’s like any other line of credit, but it is secured against the equity in your home so it allows you to enjoy a lower rate than an unsecured one.

Ok, But What Is A Line Of Credit?

Think of a line of credit like a credit card. You have a limit on the amount of money you can borrow. You pay interest only on the balance. And you can make minimum payments which is mostly interest and very little principle. Usually a line of credit is accessed with a bank card (sometimes even looks like a credit card) and/or at the branch directly.

How Low Is The Rate?

When asking the question “what is a HELOC”, usually the next question is “what is the rate”. For secured lines of credit (or HELOCs), the rate is usually the bank prime rate + some small fraction of a percentage like 0.5%.

The advantage of a HELOC is that it is there when you need it, and you only pay when you use it, unlike a mortgage where you borrow a lump sum and pay it down over time. A mortgage generally goes in one direction only: down.

The disadvantage of HELOC? It can be abused like any credit card so be careful and budget!

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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