The Keys to Unlocking Equity and Securing a Home Equity Line of Credit
Imagine the worst has happened. You’ve lost your job or you/a family member has fallen ill. The income you once relied on is no longer there – or your expenses have gone up and you can’t afford your regular bill payments. Unfortunately financial difficulty can strike any family at any time. If you own a home you may have an easy way to make it through a tough time. If you’ve got home equity, a home equity line of credit may be the answer to your cash flow problems.
Even if you don’t plan on using the money right away, a home equity line of credit (HELOC) doesn’t accrue interest when you’re not using it, similar to a credit card – but without the high interest. Avoid high interest credit card debt, foreclosure or a forced sale.
What is a Home Equity Line of Credit?
A HELOC is a revolving, and typically non-amortized, loan that is secured by a lien against your property. According to the Financial Consumer Agency of Canada, the first HELOC loans in Canada appeared in the late 1970s. Later, during the mid-1990s lenders began tailoring equity credit lines to appeal to a “broader cross-section of consumers”. Essentially, it wasn’t long after the HELOC was first introduced that lenders began to realize that no two borrowers were alike. With unique situations and circumstances, access to home equity just doesn’t look the same for every home owner – there is no “one size fits all” approach to lending.
Unlike a traditional mortgage, a home equity line of credit let’s you borrow again after you pay it down. As a HELOC is a revolving line of credit, you can treat this type of loan a lot like a credit card. Just as your credit card has a limit, HELOC loan limits are predetermined too. You can spend up to the maximum, but you won’t be able to spend more until you pay down the principal balance again. As soon as you pay down your credit line you regain access to funds and can use them again as you need them. The most important similarity to a credit card is how interest is calculated. You only pay interest on the balance of what you owe at the time you are billed.
Is a Home Equity Line of Credit Right for Me?
The easiest way to know if a HELOC is right for you is to contact a qualified mortgage broker. At TurnedAway.ca we have experienced brokers with access to a wide pool of lenders and alternative lenders. We look at your application and advise you as to who you may qualify with and what criteria they will be looking for to approve your application. In addition to our industry knowledge and contacts, we also provide the benefit of one-stop-shopping. You can apply with us and we can approach more than one lender on your behalf without the requirement for multiple credit checks. Your credit score will not be impacted by multiple credit inquiries that can damage your chances of being approved for new credit.
What to Ask Yourself First
How do you know if a home equity credit line is the right product for you? Here are a few things that you can ask yourself before you apply.
- Can I afford to add an additional payment to my budget?
- Do I need extra credit to achieve my goals?
- Can I save for my goals instead – do I have time or do I need money now?
- How will I use the money I borrow?
- How much credit do I need?
- Will a home equity line of credit solve my cash flow problem?
What to Ask Lenders
If you’ve never asked to borrow a home equity line of credit or applied for a second mortgage before, you may not know what to ask lenders. Before you sign on for any new credit product, know what you’re getting into. Some lenders will approve you without a lot of scrutiny. Beware of deals that seem too good to be true and do your research before you sign anything. To solve your cash flow problem and get back on track, you can’t afford to “go off script”. Your financial plan has to meet your expectations so that you can plan for the future and stick to your repayment terms.
- What do I need to provide to qualify for a loan?
- What is the best interest rate that you can give me?
- Does interest increase during the life of my loan? How often and how much notice will I receive before an increase?
- What about hidden fees?
- Will you run a credit check?
Checking Your Credit (The Good, Bad and Ugly)
The good news is that a credit check doesn’t have to be a bad thing. One of the reasons we recommend you ask about credit checks is to eliminate lenders who won’t do one. At TurnedAway.ca we do credit checks because you never know what your score really is until you check. Sometimes, that score can help you qualify for a better mortgage rate and sometimes it’s much better than you thought it would be. Either way, we recommend avoiding lenders who promise to approve your loan without a credit check. A quick look at your credit report makes good sense for both yourself and your lender.
What do you do if your credit check comes back with bad information?
If your credit check comes back with negative information it may impact the rate you qualify for. We can discuss your options and determine the best course of action for you to take. If your credit report has information that you dispute, you can appeal to the credit bureau to have your report corrected and your score updated. We will tell you if we see anything negative that impacts your score so that you can decide if you want to apply for a loan now, or wait a bit longer. Bad information can impact your score and your score can impact your interest rate.
What do do if you’ve got a bankruptcy or consumer proposal strike against you?
If you’ve filed a bankruptcy or a consumer proposal (past or present), we can advise you on how to proceed. While an active bankruptcy is a challenge, a past bankruptcy shouldn’t prohibit you from obtaining a HELOC if you’ve got enough equity. You may have to look at alternatives to home equity credit lines such as refinancing or taking on a second mortgage instead. Even if you’ve been bankrupt, we can help you find a product and a lender who will overlook this fact as long as you’ve got home equity.
We Get Your Home Equity Line of Credit Approved
Once you’ve decided to apply for a home equity line of credit, there are a few final things to consider. First, create a realistic budget for your projects and plan how to spend your money to the penny. Second, adjust your monthly expenditures to fit your new loan payment into your budget. Finally, make sure to negotiate during the lending process. Shop around for the best rate you can get. If you apply with us, we’ll shop for you – we get mortgages approved! We’ll also preserve your credit score without damaging it further with multiple inquiries. Happiness – it’s up to you, click on the button below to apply online now.