Getting a HELOC can either be a smart financial decision or a cause for trouble. A lot of people are worried about applying for a HELOC despite needing one because they worry about not being able to pay or getting tempted to max out the HELOC limit and plunging deeper into debt. These are valid concerns as recent statistics show that 40% of Canadians with a HELOC do not make regular payments and about 25% only pay the interest for their HELOC. So, how can one make the most out of a HELOC?
What is a HELOC?
Far from being easy money, a HELOC should be perceived the same way as any other loan, noting that it is a financial obligation with one’s home equity as the collateral. A HELOC is a home equity loan with a set limit and with revolving credit. This means that if you apply for a HELOC, you will be given access to a certain percentage of the value of your home equity from which you can withdraw or borrow any amount that does not exceed the set limit. It is a revolving line of credit because you are allowed to reborrow any amount within the limit if you’ve been making repayments. The payment terms for HELOCs are very forgiving with most lenders allowing interest-only payments as the minimum.
How Popular is a HELOC?
The number of Canadians who’ve applied and got approved for a HELOC has been steadily growing through the years. The total outstanding HELOC debt in Canada between 2000 and 2016 rose from just $35 billion to $211 billion with about 3 million HELOCs at present time averaging at around $70,000. With this said, there is no doubt that HELOCs are indeed one of the most popular home equity loan products more so that it allows the borrower to tap as much as 80% of the borrower’s home equity.
What a HELOC Can Do for You
If a HELOC is used wisely, it can help change your life and significantly improve your finances. You can use it to pay for renovations to drive up the value of your home (getting you more home equity), help you consolidate debt so you can finally work towards getting out of debt, invest in yourself through further education, use it to purchase a second home, or even allow you to save a lot of money on interest if used to pay off high-interest credit cards.
Money from a HELOC is immediately available as soon as approved. Think of it as a sort of ATM with your home as the bank although you have to be careful not to borrow more than you can pay off because you’ll risk losing your home. It will offer you convenience and a viable way to effectively manage your finances but you have to take care that you don’t go overboard and abuse it for unnecessary expenses.
Are you worried about getting a HELOC in 2019? Talk to us and we’ll be more than happy to answer your HELOC questions! Contact us and find out why a HELOC is one of the top ways to use your home equity in Canada!