A home equity line of credit (HELOC) is an interest-bearing loan, secured by real property. It's usually structured as a revolving line of credit, which means you can access the money multiple times, up to your credit limit.

Homeownership gives you two principal ways to access equity in your home, a.k.a., the difference between what your home is worth and what's owed on it. You can either take out a closed mortgage or you can set up a HELOC.

Home equity lines of credit come with variable interest rates—usually higher than what you'll pay on a mortgage loan, which is a lump sum you borrow and pay off with monthly principal and interest instalments.

In order to get a home equity line of credit at the best possible interest rate, you will need to have a strong credit score. 

Home Equity Lines of Credit Can Cover a Variety of Needs:

HELOCs can be used for home improvements, paying off debt (like student loans or credit card debt), consolidating high-interest rate debts like credit cards and car loans—or even just to access your cash immediately. Unlike a mortgage where you have to pay the monthly principal and interest payments whether you use all the money at once, home equity lines only require payment on what you use or whatever the running monthly balance is. In other words, you do not have to pay principal and interest payments, but only pay interest on the money you use. 
 
Home Equity Lines of Credit Aren't Right for Everyone:

If you're not likely to pay off your home equity loan quickly, or if you have trouble managing debt already—like making minimum payments on high-interest rate balances—this type of loan probably isn't for you. One of the biggest mistakes borrowers make is keeping large balances on their home equity line of credit for a long period of time. This equals higher interest payments and the inability to reduce the principal balance. 

It's important to remember that HELOCs are short-term financial solutions since they are 'revolving' and 'open', meaning you don't have to pay a penalty to pay them off early. And, because they are interest-only loans and are lent out at higher interest rates, it makes little sense to carry balances on them for long.

If you make minimum monthly payments on your home equity line of credit but never pay down the balance, it may be time to consolidate your HELOC into a closed mortgage product and save yourself time and money!

Mortgages Are Usually Better Than Home Equity Lines of Credit:  

A mortgage is usually a closed loan that comes with a lower interest rate when compared to home equity lines of credit. Monthly principal and interest payments help to pay down a mortgage faster since you cannot access any of the money you have paid towards your mortgage. With HELOCs, you can access the money you have already paid towards the balance since it is a revolving credit product. This can be counterproductive and keep you in debt for longer than you prefer.

Speaking to a mortgage professional like myself can help you clarify which option is better suited for your financial situation. Sometimes, you can save a fair bit of money just by closing down your HELOC product and taking out a closed mortgage loan instead. Other times, it makes sense to take out a line of credit instead of breaking your mortgage, for example.
 
Do you need mortgage help? Book an appointment today: > https://calendly.com/sarahcoluccimortgage.


Sarah A. Colucci, Senior Mortgage Agent
Mortgage Edge, Broker 10680/Direct: 647-773-4849
www.coluccimortgages.com
 

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Many people dream of owning their own home. However, the process of buying a house can get complicated and time-consuming. That's why getting a pre-approval for a mortgage loan is so important for first-time homebuyers. In this post, we will discuss 4 secrets to get pre-approved for your mortgage faster!

-Secret #1: Find out your credit score. In order to qualify for a mortgage that comes with the most competitive interest rate, you will require a good to excellent credit score. Usually, mortgage lenders require your credit score to be at least 620, however, high-ratio mortgage insurers like CMHC and Genworth will approve applications where credit scores are 600 and up. If your credit score is below 600, it is likely you will require a 20% down payment since your application will probably need to be submitted to an alternative or "B" lender. Alternative lenders require a down payment of at least 20% of the purchase price.

You can check your credit yourself through websites such as Credit Karma (https://www.creditkarma.ca/), Equifax, and TransUnion. There is no consequence for checking your own credit! Checking your own score has no impact on your credit score. In fact, the Government encourages consumers to check their credit scores regularly to ensure the information presented and reported is correct and accurate.

-Secret #2: Gather your income documents. Once you have discovered that your credit score suffices for mortgage financing, take the time to gather your income documents. Your mortgage broker or banking specialist will probably require a copy of your most recent pay stub and letter of employment. If you're currently receiving an hourly wage, and are not guaranteed a weekly set of hours, you will also need to show your T4s for the last two years. Lenders use a two-year average of income if you are not guaranteed your weekly hours but have been employed by the same company for the last two years.

If you're self-employed, you will need to show your T1 Generals for the last two years, which state your declared income on Line 150. If you own a corporation, you will need to show how you pay yourself. For example, you may issue yourself a T4 each year or pay yourself dividends. You will need to show the last two years of income since the average of those two years will be used to qualify.

What if you claim little income?

This is not always a deal-breaker. Lenders understand that self-employed individuals may not claim a lot of income, and therefore, have offered certain tailored mortgage products for individuals in this situation, such as the 'stated income' program. Stated Income Programs look at the reasonability of income for the profession instead of what's declared on personal taxes. If you'd like to learn more about Stated Income Programs, visit https://www.sagen.ca/products-and-services/business-for-self/ or speak to your mortgage broker about stated income programs if you are self-employed.

-Secret #3 Determine your down payment. You need to ensure you have a down payment in order to purchase property in Canada. By law, you must have at least 5% of the purchase price of a property up to $500,000 ($25,000) and 10% on the remaining amount under $1 Million. So, for example, if you are purchasing a home worth $700,000, you will need a minimum of $45,000 ($25,000 (5%) on first $500,000 and $20,000 (10%) on the remaining $200,000). You will also require closing costs such as land transfer tax and lawyer fees. Lenders usually estimate this is 1.5% of the purchase price. The Government entitles you to a land transfer tax refund of up to $4,000 if you are a first-time homebuyer. Learn more about this refund here: Land Transfer Tax Refund.

If you plan to purchase property over $1 Million, you will require at least 20% of the down payment available since there is no high-ratio mortgage insurance available.

-Secret #4: Make A Pre-Approval Appointment. Once you have determined your credit score is sufficient, your income documents are in order and you have a down payment available, make an appointment with your local mortgage broker or banking specialist. Since you have done some of the most important legwork yourself, your mortgage specialist will plug in the information and advise you of the maximum amount of mortgage you qualify for.

Here at my office, I always secure a 90-120 day rate hold for my clients directly from one of our lender partners, which ensures that they hold an interest rate in the event rates rise within the time you are looking for a home to purchase. Of course, if interest rates go down during this time, you will always get offered the best rate.

A pre-approval appointment is also a great time to ask questions you have to clarify the process and prepare you for home buying success.

Do you need a mortgage pre-approval? Book an appointment today:
> https://calendly.com/sarahcoluccimortgage.


Sarah A. Colucci, Senior Mortgage Agent
Mortgage Edge, Broker 10680/Direct: 647-773-4849
www.coluccimortgages.com