When you take a home equity line of credit (HELOC), your equity in the home is held as collateral for the credit. It is best to take a line of credit against your home for important reasons like paying for education, medical bills or even important home improvements, and not use it to cover daily expenses. Credit limit calculation Generally, when calculating the credit limit that can be allowed to you, a lender will approximate a certain percentage of your home’s appraised value minus the mortgage amount you presently owe on your house as the maximum credit limit. Also, a mortgage lender estimates your ability to pay back the loan by assessing your income, credit history, financial obligations and debts. HELOC pans Most home equity line of credit plans have a fixed duration in which you can borrow money, and at the end of this period you may be allowed to renew your credit line. If your plan does not allow renewals, then you will not be able to borrow extra money at the end of this duration. A few plans demand the full payment of outstanding balance when the period ends and a few others have provisions where you can repay the amount over a fixed period. This fixed period may then be called the repayment period.
Withdrawing credit A HELOC generally allows you to borrow till the maximum credit limit at anytime and to make these withdrawals, lenders mostly issue special checks or cards. Some banks have terms according to which either you will have to borrow a minimum amount each time you withdraw money or you will have to have a minimum balance in the line of credit account. What to look for in a plan You should apply for a home equity line of credit plan that best suits your requirement. It is important that you carefully examine the clauses listed in the plan contract and understand the terms and conditions. Evaluate the annual percentage rates of each plan and the costs of establishing them. Rate of interest Most often a line of credit against your home is taken at a variable rate of interest rather than a fixed rate. This variable rate is determined using a valid available index. In such cases, your rate of interest will fluctuate depending on the variations in the value of index. The rate of interest is generally determined by adding a margin of around 2 percent to the value of index at that time. Also, laws state that a cap or a limit must be established, so that the interest rate on your HELOC does not rise beyond a certain point. The same is done to ensure that the interest rate does not drop drastically. Sometimes, mortgage lenders offer introductory interest rates which are considerably low and after the introductory period is over, the interest rates go up.
With several money lenders offering a variety of interest rates on the home equity credit line, it is possible that you will get confused with so many terms and conditions. At a time like this, you can hire a mortgage broker to help you select the right lender for your home equity line of credit. For more information on a home equity line of credit in Toronto, contact a mortgage broker at Canadian Mortgages Inc.
Withdrawing credit A HELOC generally allows you to borrow till the maximum credit limit at anytime and to make these withdrawals, lenders mostly issue special checks or cards. Some banks have terms according to which either you will have to borrow a minimum amount each time you withdraw money or you will have to have a minimum balance in the line of credit account. What to look for in a plan You should apply for a home equity line of credit plan that best suits your requirement. It is important that you carefully examine the clauses listed in the plan contract and understand the terms and conditions. Evaluate the annual percentage rates of each plan and the costs of establishing them. Rate of interest Most often a line of credit against your home is taken at a variable rate of interest rather than a fixed rate. This variable rate is determined using a valid available index. In such cases, your rate of interest will fluctuate depending on the variations in the value of index. The rate of interest is generally determined by adding a margin of around 2 percent to the value of index at that time. Also, laws state that a cap or a limit must be established, so that the interest rate on your HELOC does not rise beyond a certain point. The same is done to ensure that the interest rate does not drop drastically. Sometimes, mortgage lenders offer introductory interest rates which are considerably low and after the introductory period is over, the interest rates go up.
With several money lenders offering a variety of interest rates on the home equity credit line, it is possible that you will get confused with so many terms and conditions. At a time like this, you can hire a mortgage broker to help you select the right lender for your home equity line of credit. For more information on a home equity line of credit in Toronto, contact a mortgage broker at Canadian Mortgages Inc.
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